Abstract

The controversy around the rising use of equity-based compensation for audit committee members and the enhanced responsibilities of audit committee is the basis for this study to examine the factors that affect a firm’s use of stocks and stock options to remunerate audit committee members. Our results show that firms having more severe agency conflicts are less likely to give equity-based compensation to audit committee members. Furthermore, firms with more compensation committee members sitting on the audit committee are significantly more likely to compensate audit committee members with stocks and stock options. Moreover, when more audit committee members are also top managers of other companies, the probability of equity remuneration for audit committee members is lower. Given that prior studies find that equity-based compensation for audit committee members is associated with earnings management, accounting restatement, and internal control weakness, our study contributes to the literature by identifying the factors that contribute to the use of equity-based compensation for audit committee members.  

Keywords

corporate governanceaudit committeeequity-based compensationagency conflicts