Impact of audit committee social capital on the adoption of COSO 2013

This study aims to examine the effect of audit committee social capital, measured using network centrality from social network theory, on the adoption of the COSO 2013 updated internal control framework (COSO 2013). Drawing on social capital literature, we argue that well-connected audit committees have informational advantages and reputational concerns which prompt them to learn more about best industry practices and adopt those practices in their own organizations. As predicted, we find organizations that have well-connected audit committees are more likely to adopt COSO 2013 and do so in a timely manner. Additional analysis indicates that our findings are driven by overall audit committee connectedness and not by the connectedness of committee chairs, committee financial experts, or committee members, and hold only for accelerated filers. Further, we find, contrary to conventional wisdom, that audit committee connectedness prompts KPMG client organizations to adopt COSO 2013. The results hold even after controlling for CEO and CFO connectedness and are robust to endogeneity concerns. By linking audit committee connectedness with COSO 2013 adoption, we add to the literature investigating the effect of audit committee characteristics on firm compliance with internal control framework updates.