Investigating the Relationship between Corporate Governance Mechanisms and the Effectiveness of the Audit Committee

Due to conflicts of interest, corporate executives may not use corporate resources to increase shareholder wealth. The experts find that the best solution to this problem is improving corporate governance. The purpose of this paper is to examine the relationship between the efficiency of the audit committee and other corporate governance mechanisms. The mechanisms of corporate governance in this research include the independence of the board, the dichotomy of the role of the CEO and the ownership structure. Following the previous research, to measure the efficiency of the audit committee, the average of the score awarded to the three criteria of expertise, independence and size of the audit committee have been used. The period of research is from 2013 to 2017, over which, applying our sampling criteria, 130 Listed Companies in Tehran Stock Exchange were sampled out. The research findings indicate that there is significantly negative relationship between effectiveness of the audit committee with independence of the board and the dichotomy of the role of the manager. The negative relationship is indicative of substitutive role of independent board for the audit committee. Also, there is a positive and significant relationship between major shareholders and the government ownership with the effectiveness of audit committee. These two mechanisms strengthen one another, enabling us to interpret complementary role for them. However, institutional ownership has not relationship with the effectiveness of the audit committee.