Comparison of Effectiveness between Two Supervisory Systems in China: With and Without Audit Committees

Chihuang H. Lin, Pao-Chen Lee 
(Department of Accounting, Kainan University, No. 1, Kainan Road, Luzhu, Taoyuan County 33857, Taiwan)

Abstract: China’s Securities and Exchange Commission’s regulations for supervisory functions of Corporate Governance—Audit Committees (ACs)—make ACs voluntary. Thus, two systems may exist simultaneously: Supervisory Boards with and without ACs. Between 2000 and 2007, the proportion of listed companies with ACs increased from 1% to 41%, implying that companies with ACs add them to improve the effectiveness of supervisory functions. This study investigates whether such companies’ ACs enhance supervisory effectiveness. I obtained panel model regression test results. The data analysis of the quantitative research results compared the data of the two systems. The results yielded statistically significant evidence that the ACs’ contributions did improve the supervisory effectiveness on six variables. However, the Supervisory Boards (SBs’) must remain along with ACs because companies without ACs perform more supervisory activities and listed ACs increase SBs’ legal and internal audit expertise.

Key words: effectiveness; audit committee; supervisory board; corporate governance

JEL code: M480