Does AC effectiveness mediate the relationship between knowledge intensity and firm performance? Evidence from India

Abstract

Purpose

The study aims to investigate the mediation effect of the Audit Committee’s (AC) effectiveness on the relationship between knowledge intensity and firm performance (FP) by considering the disparate effect of each AC characteristic on its effectiveness.

Design/methodology/approach

The study uses the partial least squares-structural equation model (PLS-SEM) to weigh the AC characteristics for its effectiveness and analyzes the relationships between the variables included in the models. Data was collected from authentic sources for 133 National Stock Exchange (NSE)-listed companies in six industries covering the period 2016 to 2020.

Findings

The results indicate that eight out of eleven AC characteristics, namely, nonexecutive directors, independence, expertise, AC-charter, multiple directorships, frequency of AC meetings, attendance of AC meetings and board meetings by AC directors, significantly influence the AC effectiveness while mediating the relationship between knowledge intensity and FP. Further, each characteristic of AC has a disparate effect on AC effectiveness depending on the measurement context.

Research limitations/implications

Apart from guiding the policymakers, management and stakeholders to effectively use AC characteristics in enhancing FP, this study further contributes to the literature by providing a new way to weight AC characteristics based on their individual contributions; and exploring new path models to analyze the multidimensional effect of various AC characteristics.

Originality/value

To the best of the authors’ knowledge, the study is the first to examine the mediation role of AC effectiveness on the relationship between the knowledge intensity of the firms and their performance. It demonstrates improvisation in measuring AC effectiveness using the disparate weights for each AC characteristic, computed based on their relative contribution to AC effectiveness.

Citation

Singhania, A.K. and Panda, N.M. (2022), "Does AC effectiveness mediate the relationship between knowledge intensity and firm performance? Evidence from India", Journal of Financial Reporting and Accounting, Vol. ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JFRA-06-2022-0214