Moderation effects of multiple directorships on audit committee and firm performance: A middle eastern perspective

Figures & data

Table 1. An overview of audit committee requirements for Saudi Arabia

Regulation	Saudi’s Corporate Governance Regulation
Formation	Mandatory – ‘comply or explain’ basis
Composition	No Executive directors
	Not less than 3 directors or more than 5 directors
	One member must be financial expert
	Chairman must be independent director
Financial Expert & Literacy	Recommends one finance and accounting expert but does not have to be Independent.
External audit	Provide recommendation in terms of nomination and/or termination of external auditors, compensation package, performance evaluation and scope of work.
	Verifying the independence of the external auditors
	Reviewing and certifying the scope of work for external auditors.
Internal Control	Examining and reviewing companies’ internal control and risk management system.
	Examining internal audit report and implementing counteractive measures
	Monitoring and overseeing the performance and activities of internal auditor.
	Recommendation to the board on the selection of the head of internal auditor.

Table 2. Variables description and measurement

Variables	Operationalization	Source
Independent variables
Number of audit committee meetings	Number of meetings audit committees’ holds in one calendar year	Annual Report (Tadawul).
Audit committee meetings’ attendance	The overall percentage of meeting attendance of all audit committee members.	Annual Report (Tadawul).
Audit committee directors’ multiple directorship	A binary variable of 1 is assigned if audit committee members have outside directorships and a 0 if otherwise.	Annual Report (Tadawul).
Dependent variables
Tobin’s-Q (TQ)	Total Market Value of Firm/Total Asset Value of Firm.	Bloomberg database
Return on Assets (ROA)	Net Income/Total Assets	Bloomberg database
Control variables
Firm Size (FS)	Natural log of total assets	Annual Report (Tadawul)
Firm Age (FA)	Difference between year of study and the year of incorporation.	Annual Report (Tadawul).
Audit Committee Size	Number of audit committee members.	Annual Report (Tadawul).
Auditor’s Reputation (AR)	A binary variable of 1 is assigned if the auditors are one of the big-4 CPAs and a 0 if otherwise.	Annual Report (Tadawul).
Family Ownership (FB) Family business is identified if at least 2 members in the BOD are family members or if the ownership of the firm by family members are more than 50%.	A binary variable of 1 is assigned for family business and a 0 if otherwise.	Annual Report (Tadawul).
Independent Directors in Audit Committee (ID) A director from the Board of Directors who does not have any pecuniary relationship and is not involved in the executive management of the firm.	Total number of independent directors in the audit committee/total number of directors in the audit committee.	Annual Report (Tadawul).
Outside directors in audit committee (OD) Members in the Audit committee who are non-board of directors (BOD) and are mainly from outside the firm.	Total number of outside directors in the audit committee/total number of directors in the audit committee	Annual Report (Tadawul).

Table 3. Descriptive statistics based on the 485 firm-year based Tadawul companies

	Mean	Min	Max
Number of audit committee meetings	8	4	10
Audit committee meeting attendance	68%	41%	100%
Independent Directors in audit committee	63%	18%	100%
Outside financial experts in audit committee	34%	0%	54%
Tobin’s-Q	1.16	0.46	1.64
ROE	14.48	−49.54	56.59
Firm age (FA)	31.45	8.000	90.00
Log firm size (FS)	8.509	6.409	12.33
Auditors’ reputation (AR)	0.862	0.000	1.00

Table 4. Correlation metrics for independent variables used in Models 1 and 2

	V1	V2	V3	V4	V5	V6	V7	V8
V1		0.047	−0.063	−0.063	0.135	0.147	0.240	0.209
V2	0.047		−0.072	−0.267	0.040	−0.217	−0.010	−0.035
V3	−0.063	−0.072		0.147	0.113	−0.184	−0.203	0.394
V4	−0.063	−0.267	0.147		0.347	0.311	−0.316	0.163
V5	0.135	0.040	0.113	0.347		0.069	−0.114	0.208
V6	0.147	−0.217	−0.184	0.311	0.069		−0.099	0.090
V7	0.240	−0.010	−0.203	−0.316	−0.114	−0.099		0.037
V8	0.209	−0.035	0.394	0.163	0.208	0.090	0.037

Max = 0.394, Min = 0.316. V1=Number of audit committee meeting, V2=Audit committee meeting attendance, V3=Firm Age (FA), V4=Log Firm Size (FS), V5=Auditors’ reputation, V6=Audit committee size (AS), V7=% of independent directors on audit committee, V8=Outside financial expert on audit committee.

Table 5. Correlation metrics for independent variables used in the correlation metrics for variables

	V1	V2	V3	V4	V5	V6	V7	V8	V9	V10
V1		0.047	0.071	0.035	−0.063	−0.063	0.135	0.147	0.240	0.209
V2	0.047		0.651	0.019	−0.072	−0.267	0.040	−0.217	−0.010	−0.035
V3	0.071	0.651		0.328	−0.044	−0.144	−0.114	−0.067	0.102	0.026
V4	0.035	0.019	0.328		−0.051	0.345	−0.225	0.173	0.015	0.167
V5	−0.063	−0.072	−0.044	−0.051		0.147	0.113	−0.184	−0.203	0.394
V6	−0.063	−0.267	−0.144	0.345	0.147		0.347	0.311	−0.316	0.163
V7	0.135	0.040	−0.114	−0.225	0.113	0.347		0.069	−0.114	0.208
V8	0.147	−0.217	−0.067	0.173	−0.184	0.311	0.069		−0.099	0.090
V9	0.240	−0.010	0.102	0.015	−0.203	−0.316	−0.114	−0.099		0.037
V10	0.209	−0.035	0.026	0.167	0.394	0.163	0.208	0.090	0.037

Max = 0.651, Min = 0.316.

V1 = Number of audit committee meeting, V2 = Audit committee meeting attendance, V3 = Audit committee multiple directorship × audit committee, V4 = Audit committee multiple directorship × number of audit committee meetings, V5 = Firm Age (FA), V6 = Log Firm Size (FS), V7 = Auditors’ reputation, V8 = Audit committee size (AS), V9 = % of independent directors on audit committee, V10 = Outside financial expert on audit committee.

Table 6. Breusch-Pagan Lagrange Multiplier Tests for Random Effects

	Cross-section	Time	Both
Model 1 Probability	158.408	0.005	158.413
	0.000	−0.944	0.000
Model 2 Probability	335.802	1.192	336.994
	0.000	−0.275	0.000
Model 3 Probability	328.222	1.132	329.354
	0.000	−0.287	0.000
Model 4 Probability	149.013	0.000	149.013
	0.000	−0.992	0.000

Null hypotheses: No effects.

Table 7. Relationship between number of audit committee meetings, meeting attendance and firm performance

	Model 1		Model 2
	ROE		Tobin’s-Q
Number of audit committee meetings	−0.2643*	0.0769	−0.0217	0.6956
Audit committee meeting attendance	−0.0344*	0.0167	−0.0365***	0.0000
Firm Age (FA)	0.0108***	0.0000	0.0090***	0.0000
Log Firm Size (FS)	2.0472***	0.0000	0.9852***	0.0000
Auditors’ reputation	−3.8553***	0.0000	−3.8049***	0.0000
Audit committee size (AS)	−1.4249***	0.0002	−1.3146***	0.0000
% of independent directors on audit committee	0.0684***	0.0000	0.0765***	0.0000
Outside financial expert on audit committee	−1.1970	0.1113	−2.1935***	0.0000
Adjusted R^2	0.59		0.71
F-statistics	41.07		69.10

Notes: *p < 0.10; **p < 0.05; ***p < 0.01.

Table 8. Moderation effects of multiple directorships on number of audit committee meetings, audit committee meetings’ attendance, and firm performance

	Model 3		Model 4
	Tobin’s-Q		ROE
Number of audit committee meetings	−0.0156	0.7605	−0.3389*	0.0301
Audit committee meetings’ attendance	−0.0558***	0.0000	−0.0469	0.1254
Audit committee multiple directorship x audit committee meetings’ attendance	0.0426**	0.0017	−0.0170	0.6146
Audit committee multiple directorship x number of audit committee meetings	0.4817***	0.0000	0.6947***	0.0007
Firm age (FA)	0.0098***	0.0000	0.0114***	0.0000
Firm size (FS)	0.5248***	0.0031	0.9108*	0.0201
Auditors’ reputation (AR)	−1.7438***	0.0092	−0.9665	0.4088
Audit committee size (AS)	−1.4129***	0.0000	−1.2976***	0.0037
% of independent directors on audit committee	0.0619***	0.0000	0.0745***	0.0000
Outside financial experts on audit committee	−3.7424***	0.0000	−1.4278	0.1015

Notes: *p < 0.10; **p < 0.05; ***p < 0.01.

Table 9. Summarized statistical interpretation of the moderation effects of multiple directorships on number of audit committee meetings, audit committee meeting attendance and firm performance

Moderation effects of multiple directorship on the relationship between number of audit committee meetings, audit committee meetings’ attendance and Tobins-Q	Multiple directorship	Meeting Attendance	Number of Meetings
TOBINS-Q	0	−0.0558**	−0.0156
	1	−0.0132**	0.4661
Moderation effects of multiple directorships on the relationship between number of Audit committee meetings, Audit committee meetings’ attendance and ROE	Multiple directorship	Meeting Attendance	Number of Meetings
ROE	0	−0.0469	−0.3389*
	1	−0.0639	0.3558 *