Is Compensating Audit Committee Members with Stock Options Associated with the Likelihood of Internal Control Weaknesses?
Document Type
Article
Keywords
Corporate governance; audit committee; director compensation; internal control weakness; Higgs Report
Publisher
Wiley Blackwell
Publication Source
International Journal of Auditing
Abstract
We examine whether firms with a stock option plan for their audit committee members are more likely to have internal control weaknesses. Using a sample of 486 US firms, we find that firms with a stock option plan for their audit committee members are significantly more likely to report an internal control weakness than firms without such a stock option compensation plan. Our results support a UK government report which indicates that compensating outside directors with stock options may diminish the effectiveness of these directors. Our findings suggest that stock option compensation plans may adversely affect the functioning of a firm's audit committee.
Comments
Published by Wiley Blackwell in International Journal of Auditing, volume 14 issue 3, 2010. Bryant users may access this article here.