Does audit committee constrain firms’ risks in Malaysian family manufacturing firms?

Abstract

Purpose

The purpose of this study is to investigate the association between audit committees’ characteristics and firms’ risk in Malaysian manufacturing firms.

Design/methodology/approach

The effect of audit committees on firms’ risk is investigated by 930 firm-year observations between the fiscal years of 2004 and 2009 of Bursa Malaysia listed firms during the global financial crisis. Panel data regression analysis is used to analyze the relationship.

Findings

The findings of this study indicate that audit committee’s independence reduces firms’ risk. Nonetheless, across various analysis, the authors fail to associate audit committee’s qualification and membership in professional bodies with firms’ risk. Consistently, the authors find that family ownership is negatively associated with IDIOSYNCRATIC risks, supporting previous studies claim that family firms are more risk averse than non-family firms.

Research limitations/implications

The analysis is confined to Malaysian family manufacturing sectors during global financial crisis 2007–2008.

Originality/value

This study offers insights into the importance of audit committees’ qualification and knowledge in Malaysian family manufacturing firms in reducing firms’ risk and providing stability to investors investment.

Citation

Wan Mohammad, W.M., Nik Salleh, N.M.Z. and Wan Yusoff, W.F. (2022), "Does audit committee constrain firms’ risks in Malaysian family manufacturing firms?", Accounting Research Journal, Vol. 35 No. 5, pp. 616-636. https://doi.org/10.1108/ARJ-01-2021-0025