Audit committee election design and monitoring effectiveness: Evidence from Korea

초록

This study examines how the design of audit committee (AC) election procedures affects monitoring effectiveness. Exploiting a legal reform in Korea that introduced a separate election requirement to limit controlling shareholders' influence over AC elections, we analyze the effects of this election mechanism from two perspectives: investors' ex ante expectations and ex post financial reporting outcomes. Using hand-collected data on AC elections of Korean listed firms from 2019 to 2023, we find that shareholder approval and stock market reactions to separate elections are more positive in firms with high ownership concentration, suggesting more favorable investor responses where expected monitoring benefits are greater. We further find that separate elections are associated with lower earnings management when ownership concentration is high, indicating improved financial reporting oversight in settings with stronger controlling shareholder influence. Overall, these findings highlight the role of election design in strengthening AC independence and monitoring effectiveness in concentrated ownership environments.

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