373 / 414
臺大管理論叢
第
27
卷第
1
期
373
well (Segal, Karp, O’Brien, Wahlquist, Shapiro, and Kahan, 2015). Given the logic for
aligning the interests of management with shareholders, it seems rational for these
compensation committee members to apply the same logic to compensate the board,
including the audit committee. As for the overlapping members, they have the power to
determine their own compensation. The stock and options compensation, which is easier to
exploit by seeking excess risks, may draw their attention. This excess risk-seeking behavior
occurs because directors who hold options and stocks would enjoy the increase in share price
that may arise from the success of risky decisions, and the downsides of failure are more
limited to shareholders (Bebchuk and Fried, 2005). Some studies have shown that firms
compensating directors with stocks and options engage in higher-risks strategies. For
example, Deutsch (2007) recognizes a significantly positive relation between the stock
option pay of outside directors and firms’ R&D intensity, suggesting that the inclusion of
stock options in outside directors’ compensation contributes to firms’ adoption of risky
strategies such as R&D. The results imply that audit committee members might view equity-
based compensation as a tool to seek greater benefits. Based on the analysis above, we
propose our second hypothesis as follows:
H2: Firms with more overlapping compensation and audit committee members are
more likely to grant equity-based compensation to their audit committee members.
3.3 Audit Committee Members Who are Also Top Executives of Other Companies
Burke, Guy, and Tatum (2009) propose that effective audit committee members should
have the following characteristics. First, they should have a general understanding of the
company’s major economic, operating, and financial risks. In addition, they should have a
broad awareness of the interrelationship of the company’s operations and its financial
reporting. Further, stock exchanges including NYSE, Nasdaq, and AMEX all require that all
members of the audit committee be financially literate, which means these members should
have a basic knowledge of financial statements, and that at least one member of the
committee should possess accounting or financial expertise.
4
People meeting these
4 The Securities and Exchange Commission (SEC) initially proposed a narrow definition to include only
accounting financial experts—that is, directors with experience as a certified public accountant (CPA),
auditor, chief financial officer (CFO), controller, or chief accounting officer. Subsequently, the SEC
defined financial expert broadly to include non-accounting financial experts, such as directors with
experience as a chief executive officer (CEO) or president (Krishnan and Visvanathan, 2008).