Audit committee accounting expertise, analyst following, and market liquidity

David B. Farber, Xiaochuan Huang, Elaine Mauldin

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We study the relation between audit committee accounting expertise, analyst following, and market liquidity. Our main results indicate that analyst following increases subsequent to the appointment of an accounting expert to the audit committee. We also provide evidence that accrual quality, as opposed to audit quality or management earnings forecasts, is the channel through which accounting expertise increases analyst following and improves analyst forecast properties. We also show that audit committee accounting expertise is related to higher trading volume and lower liquidity risk, supporting incentives for greater analyst following. Our study extends prior literature by providing evidence that audit committee accounting expertise enhances firms’ information environment beyond the effects it has on financial reporting quality or analysts’ forecast properties. Our study also complements the literature on determinants of analyst following and market liquidity, both of which are related to cost of capital. Results from our study should be useful to firms seeking to enhance analyst following and market liquidity.

Original languageEnglish (US)
Pages (from-to)174-199
Number of pages26
JournalJournal of Accounting, Auditing and Finance
Volume33
Issue number2
DOIs
StatePublished - Jan 1 2018

Fingerprint

Audit committee
Expertise
Analyst following
Market liquidity
Analysts' forecasts
Information environment
Liquidity risk
Cost of capital
Trading volume
Incentives
Audit quality
Accrual quality
Financial reporting quality
Management earnings forecasts

Keywords

  • Analyst following
  • Audit committee accounting expertise
  • Market liquidity

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics, Econometrics and Finance (miscellaneous)

Cite this

Audit committee accounting expertise, analyst following, and market liquidity. / Farber, David B.; Huang, Xiaochuan; Mauldin, Elaine.

In: Journal of Accounting, Auditing and Finance, Vol. 33, No. 2, 01.01.2018, p. 174-199.

Research output: Contribution to journalArticle

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