Corporate Characteristics and Effectiveness of Audit Committee: The Structural Equation Modeling Approach

Audit committee is one of the effective monitoring mechanisms to increase the quality of disclosure of the internal control system, which helps reduce the cost of representation. Hence, many researchers have argued that the existence of an effective audit committee can play effective role in improving the information system and in ensuring the credibility of the company's financial reports. Based on this argument, the present study examines the relationship between company's characteristics and the effectiveness of audit committee, regarding the approach of structural equation modeling. A sample of 147 companies listed in the Tehran Stock Exchange during the years 2013 to 2017 was selected. The effectiveness of audit committee (hidden variable) was measured by the observed variables of financial expertise, independence and size of audit committee, and the characteristics of the company (hidden variable) was measured by the observed variables of firm size, financial leverage, composition of the board of directors, institutional shareholders, profitability, liquidity , and company growth. After ensuring the correctness of measurement results and structural model, findings showed that size of company, financial leverage, composition of the board, shareholders, profitability, liquidity and company growth increase the effectiveness of audit committee.