The Informativeness of Reported Earnings and Characteristics of the Audit Committee

An information usefulness approach to decision making points out that only the information is regarded as useful that will bring valuable messages to investors and lead to stock price adjustments. This study examines the effectiveness of audit committees in improving earnings quality and informativeness, particularly among family-owned firms. Earnings informativeness was measured through the relationship between accounting earnings and cumulative abnormal stock returns (CAR). In addition, the characteristics of the audit committee include independence, size, and financial expertise. The sample under study included 138 firms listed in the Tehran Stock Exchange over the period from 2011 to 2017. The research hypotheses were tested using statistical analysis techniques including the panel data method and linear regression model in Eviews software. Besides, the Chow test was used to determine if the mixed data would be more efficient for estimating the desired function, and Fisher's statistic was used to examine the significance of the regression model. Also, Student's t-test was employed to examine the significance of the coefficients of the explanatory variables in the regression model and Durbin-Watson's test we run to check the non-autocorrelation assumption of the model residuals. The results showed that the characteristics of the audit committee increase earnings informativeness. Also, the characteristics of the audit committee do not affect the relationship between family ownership and earnings informativeness.