Modelling the impact of audit/remuneration committee overlap on debtholders' perceptions of accounting information quality: The role of CEO power
Résumé
This study examines how debtholders perceive accounting information quality
of firms with audit committee members who are also on the remuneration
committee, and whether strong CEO power enhances or undermines the gov-
ernance role of overlapping committees. Using 841 observations of Malaysian
firms over the period 2013–2015, we find that firms with overlapping audit and
remuneration committees are perceived by debtholders to be transparent and
of lower operating risk and, consequently, be associated with lower cost of
debt. We also find that the beneficial effect of the presence of overlapping com-
mittees is weakened by the level of CEO power. Our results are robust to con-
cerns of endogeneity and alternative measurers of the key variables. This study
is timely in light of recently increasing call for the broadening of audit commit-
tee members' understanding of business strategies, risks and incentives pro-
vided by firms' executive compensation structures. Our study also contributes
to the ongoing debate surrounding CEO power by suggesting that debtholders
perceive potent CEO power as detrimental to their investments and thus
charge higher interest rates from firms with powerful CEOs and overlapping
directors.