Audit Committee Member Characteristics and Committee Effectiveness: Evidence from Turkish Banking Sector

Abstract

Lack of corporate governance was addressed as one of the reasons for financial scandals and crises experienced during the 2000s. Financial crises were followed by audit committee mechanism revision, and focus shifted onto how audit committees' governance quality could be improved. Using a unique data set, this study investigates the impact of audit committee membership characteristics on the governing quality of the audit committee measured by operational loss in the Turkish banking sector. Results imply that gender diversification and multiple directorships of the members improve the governance effectiveness while auditing background alone does not make significant improvement after controlling for industry experience. Differences in cultural background and insufficient funding of the committee could be detrimental to the effectiveness of banks' audit committees at mitigating operational risk. Trends of the member characteristics for 2006-2012 suggest that the 2008 turbulence has mainly had a disciplinary effect on effective audit committees.