These results should be of direct interest to policy makers
and stock exchange regulators throughout the world, who
seek to enhance auditor independence by means of general
regulatory change. Those who do not require an AC in
listed corporations are in a ‘shrinking’ minority. As a result,
corporate managers in ‘developing’ countries (like India),
who are considering a move into a ‘larger’ capital market
will likely need to establish an AC before their stock may
be traded on a listed market.
To sum up, adequate, relevant and high quality disclosures
are one of the most powerful tools available in the hands of
independent directors, shareholders, regulators and outside
investors to monitor the performance of a corporation.
This is particularly important for emerging economies like
India, where there is “insider” dominance. To this extent,
measures that strengthen auditor independence and enhance
the powers, functions, and the independence of an AC will
be crucial in the governance of the Indian corporations.
Governance risk is a key determinant of market pricing of
listed securities. A high perceived “independence quotient”
of a corporation’s auditing process can be reassuring to
outside shareholders that can help reduce the risk premium