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AUDIT COMMITTEE EFFECTIVENESS AND FIRM CREDIBILITY:
AN EMPIRICAL INVESTIGATION OF THAI-LISTED FIRMS
Phuangthip Akarak, Mahasarakham University, Thailand

Phapruke Ussahawanitchakit, Mahasarakham University, Thailand
ABSTRACT
The study investigates the effectiveness of audit committee in terms of the firm credibility.
Specifically, it examines the relationship between audit committee effectiveness and financial
reporting quality, corporate governance success, external audit efficiency of Thai-listed firms.
Moreover, this study tests the influence three antecedences as corporate board accountability, audit
committee competency and regulator encouragement support to audit committee effectiveness. This
study focuses on the audit committee effectiveness comprise five dimensions as 1) Financial reporting
preparation reliability 2) Internal audit effectiveness 3) Business risk management efficiency 4)
Regulation practices achievement and 5) Independence auditing process. Sampling frames are Thai-
listed firms and data collecting is by the questionnaire mail survey with which 146 from 524 firms are
usable responses making 27.87 percent. Regression statistic technique is used for analyzing. The
results indicate audit committee effectiveness is significantly positive related to firm credibility,
financial reporting quality, corporate governance success and external audit efficiency. Moreover, the
results show a significant positive relationship among corporate governance success, external audit
efficiency and firm credibility. Surprisingly, the financial reporting quality reveals no significant
positively firm credibility. Additionally, all three antecedences support to audit committee
effectiveness. Potential discussion is competently implemented in the study. Research implication,
future research directions and conclusion will be presented.
Keywords: Audit committee, Audit Committee Effectiveness, Firm Credibility, Financial Reporting
Quality, Corporate Governance, External Audit Efficiency, Corporate Board Accountability, Audit
Committee Competency, Regulator Encouragement, Professional Management Orientation
1. INTRODUCTION
In recent years, the audit committee has become imperative for listed firms. The audit committee
occurred within a corporate governance system. An audit committee member is selected from board
corporate of listed firms. The large firms in capital market have audit committee to oversight operation.
Then, the audit committee is a mechanism of good corporate governance. The listed firms need to
continuously improve their global standards management leading to effectiveness and efficiency. The
audit committee is now widely known in a mechanism of governance. They ensure the quality,
credibility, and objectivity of financial reporting. The audit committee member has a role to oversight
responsibility of the listed firm. The characteristics of audit committee are to enhance the
effectiveness of responsibilities. In prior evident, it describes the composite of characteristics as
composition, qualification, powerful, method communication with all parties as internal auditor,
external auditor, management, and board of director to improve audit committee effectiveness (BRC,
1999). The duties and responsibilities of audit committee are defined clearly in audit committee charter.
However, board corporate sets the audit committee and supports all needed information and resources.
Moreover, the regulator encourages audit committee to improve effectiveness along with best practice
guidelines, including support corporate governance rewards for good governance firm. The global public
companies receive good governance such as transparency, accountability and publication information to
serve stakeholders.
In previous evidence, Asia financial crisis revealed weak corporate reasons for the sharp decline of
Asian stock markets from July 1997 to October 1998 (Wolfensohn, 1999; Choi, 1998). Asia firms in five
countries including Thailand, Malaysia, the Philippines, Indonesia and South Korea have concentrated
on director ownership. This reason places more implications for policy maker and regulator in the Asia-
Pacific region striving to improve governance and transparency. In addition to a nation crisis, the Enron
is large firm failure in December 2001. It has financial reporting frauds with an unprecedented number
of earning restatements (Larcker, Richardson and Tuna, 2004; Palmrose and Scholz, 2002; Wu, 2002;
INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 38

Loomis, 1999). That indicates failure of corporate governance. Therefore, the governance is most
important for public companies.
The prior research found association between weaknesses in governance and poor financial reporting
quality, earning manipulation, financial statement fraud, and weaker internal controls (Klein 2002b;
Krishnan, 2001; Carcello and Neal, 2000; Dechow, Sloan and Sweeney, 1996; Beasley 1996; McMullen
1996) leads to many questions for their competence and value of firm rating. The Securities and
Exchange Commission (SEC) cites that the key questions are lack of regulatory oversight.
Consequently, they reform to improve an effectiveness of audit committee. Thus, the regulators issue
and force a rule for public company such as the Blue Ribbon Committee, 1999 (BRC, 1999); the
Sarbanes-Oxley Act, 2002 (SOA, 202). During South East Asia after financial crisis, the Asian Develop
Bank (ADB) explains opinion concerning the crisis in Thailand, Malaysia, the Philippines, Indonesia and
South Korea, which stemmed from the lack of corporate governance. The factors have effects on public
companies such as (i) the weakness of monitoring and management structure are not approximately as
family corporation which presents sufficient disclosures (ii) the intention to make more profitability put
pressure on manager to earning management (iii) the firm lacks internal control system or remains poor
efficiency (iv) the capital of source mostly from outside lacks liquidity (v) the weakness of disclosure and
(vi) the rule lacks re-enforcement by government (ADB, 1998). Furthermore, the regulator improves
good corporate governance, which leads to forces for the listed firms, including the improvement an
internal control system of firm. Additionally, the public companies set audit committee to improve firm
operation within rule of corporate governance. Then, this reason brings about the increasing transparency
and accountability of firm.
During the Asia crisis, many firms in South East Asia have caused failure companies, that low level of
transparency and disclosure. Thus, the governance has improved regulation corporate governance. And
that provides relief to a severe environmental change (Ho and Wong, 2001b), that lacks transparency
and accountability in some East Asia corporations. Consequently, the regulation related to good
corporate governance of listed companies as the Stock Exchange of Thailand (SET), which forces a rule
of governance for a listed firm and set audit committee in listed firm for ensuring greater corporate
transparency and accountability. Moreover, audit committee can explain vision and straight opinions in
financial reports. A list of audit committee responsibilities includes the financial reporting, monitoring
and evaluating internal audit processes. Moreover, they review the hiring and monitoring the
performance of outside auditors. Audit committee assists in board oversight of the company’s
compliance within legal and regulatory requirements. Including, review transactions impact conflicts
interest. Therefore, audit committees have a role of oversight or review regarding financial reporting,
internal accounting and auditing matters. In addition, audit committee connects to all parties both inside
and outside to improve effectiveness and efficiency of firm. Hence, this paper places the emphasis on
audit committee effectiveness (ACE) with a role of responsibility for mechanism of governance in
corporate. In prior research, literature review in audit committee responsibility, and improved
effectiveness of audit committee can enhance firm credibility. The study has an interest in audit
committee effectiveness with five dimensions areas in a role of audit committee oversight responsibility
as (i) financial reporting preparation reliability, (ii) internal audit effectiveness, (iii) business risk
management efficiency, (iv) regulation practices achievement and (v) independence auditing process.
Therefore, this study proposes four key research questions as follows: 1) how does audit committee
effectiveness have an effect on financial reporting quality, corporate governance success, external audit
efficiency and firm credibility? 2) how do financial reporting quality, corporate governance success and
external audit efficiency mediate the relationship between audit committee effectiveness and firm
credibility? 3) how do three of antecedents, namely, corporate board accountability, audit committee
competency and regulator encouragement have an effect on audit committee effectiveness? and 4) how
does the professional management orientation moderate the relationship among corporate board
accountability, audit committee competency, regulator encouragement, and audit committee
effectiveness? Thus, the purpose of this study is to focus on audit committee effectiveness (ACE) whole
and each of five dimensions on firm credibility, financial reporting quality, corporate governance success,
and external audit efficiency. Then, this study provides objectives to hypotheses testing as follows. The
first is to investigate the relationship between audit committee effectiveness and financial reporting quality,
corporate governance success, external audit efficiency and firm credibility. The second is to investigate
the relationship between financial reporting quality, corporate governance success, external audit

efficiency and firm credibility. The third is to examine the influence of corporate board accountability, audit
committee competency and regulator encouragement on audit committee effectiveness. The last is to test
the professional management orientation as a moderator that has a relationship among corporate board
accountability, audit committee competency, regulator encouragement, and audit committee effectiveness.
The remainder of this study is organized as follows: The second presents the theoretical framework. The
third presents literature reviews and hypothesis development. The fourth describes research design, data
collection and variable measurement of all construct in the study. The fifth shows the result and discuss of
audit committee effectiveness. The sixth comprises three contributions, limitations and suggestions for
future research directions. And, the final is the conclusion.
2. THEORETICAL FRAMEWORK
The resources-based view of a firm (RBV) is the view point of the firm resources which is interesting in
explaining many researches as strategic management, marketing, human resource management. It is
employed to create capability in order to achieve firm competitive advantage (Barney, 1991). Barney
(1991) lists four attributes for a resource that increases competitive advantage: valuable, rare,
imperfectly imitable, and strategically equivalent substitutes for this resource. RVB concept is firms’
resources and capabilities (Amit and Shoemaker, 1993; Barney, 1991; Wernerfelt, 1984). It extents to
enable a firm to enhance the level and value of its stock of marketing capabilities, therefore, that leads to
competitive advantage of firm (Teece, Pisano and Shuen, 1997). Firm’s resources are defined as
anything which could be thought of as a strength or weakness of a firm. Wernerfelt (1984) explains what
including physical resources as raw material, equipment, the human resources as training, experience,
skills. The organizational resources are firm image and process routines. Moreover, they include all firm
assets as corporate practices, information, experience, knowledge and technology (Maijoor and
Wittteloostuijn, 1996). Capability refers to the ability to deploy resources and to continuously improve the
effectiveness of firm’s operation and performance (Moingeon, Metais and Orton, 1998). The firms
employ all resources to develop, create a competitive advantage and lead to gain superior performance
(Capron and Hulland, 1999).
This paper applies to use a resource-based view of a firm that explains how the listed firms achieve a
competitive advantage (Eisenhardt and Martin, 2000; Wernerfelt, 1984) bypass human resource as
corporate board and audit committee. This framework uses concept of a resources and capability that
are intangible assets that include strategic resources to be acquired for competitive advantage
(Wernerfelt, 1984). For instance, the intangible assets are employee’s knowledge, experiences, ability
and skills of the firm’s reputation, brand name, organizational procedures. Then, both corporate board
and audit committee have intangible asset are knowledge, experience, skill of profiles to control and
monitor in function as financial reporting process, organizational operation process of internal and
external audit, business risk and specific of knowledge suggested to management leading to firm
success. The audit committee has knowledge and specially experience as environment of business,
business risk, oversight performance, financial situation and accounting policy that improve to achieve
monitoring all activities of firm. They can improve a firm operation of efficiency and effectiveness.
Therefore, corporate board and audit committee have both valuable and rare resources of firm. They
lead to success governance and objectivities. In the long term, firms with higher resources and capability
tend to gain reputation or credibility. That leads to competitive advantage of firm.
3. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT
Currently, the corporate governance (CG) is important for the listed firms. The firms need good
corporate governance in order to access the world’s capital markets (Price Waterhouse, 1997). The
rule of stock market have listed firms set an audit committee oversight firm operation. This is one
reason listed firms have audit committee (AC). Accordingly, the audit committee boosts an investor
confidence for operation of firm with governance practice (Price Waterhouse, 1997). With regard to
the literature review on audit committee effectiveness and supporting with concept of a resource-
based view of firm, this paper proposes a conceptual model to investigate in the effectiveness of audit
committee in Thai context. This study tests the audit committee effectiveness effect on consequents

as firm credibility, financial reporting quality, corporate governance success and external audit
efficiency. Moreover, it tests the influence between relationships of all antecedents and audit
committee effectiveness, included to test a moderator as professional management orientation having
effects on audit committee effectiveness. Therefore, to clearly understanding a framework of audit
committee effectiveness on consequences, antecedences are showed in Figure 1 as below:
FIGURE 1
CONCEPTUAL MODEL OF AUDIT COMMITTEE EFFECITVENESS AND FIRM CREDIBILITY
H8 H1
H9 H2
Board H10 H3 Financial
Corporate Reporting
Accountability Quality H5
Audit Committee Effectiveness H6
 Financial Reporting Preparation H7
Audit Reliability Corporate
 Internal Audit Effectiveness
Firm
Committee Governance Credibility
Competency  Business Risk Management Success
Efficiency
 Regulation Practice Achievement
 Independence Auditing Process External
Regulator
Encouragement Audit
H11 Efficiency
H12
H13
H4
Professional
Management
Orientation
3.1 Audit Committee Effectiveness

Audit committee is a mechanism of corporate governance so as to ensure the quality, credibility and
objectivity of the financial reporting (Lindsell, 1992). They have a role of oversight responsibility and
assist a board to monitor responsibilities of firm. Audit committee oversights many duties as a review
vision of the business, review financial reporting process, review internal control and audit, consider
external auditors. Moreover, they review all business risks management and review practice all rule a
relevant to business. Thus, a role of audit committee is the most important to achieve corporate
governance of listed firms. Prior research presents an audit committee more influence effective
corporate governance mechanisms. The Blue Ribbon Committee (BRC, 1999) suggests audit
committee has a strengthening both the independence and expertise. Various researches of
characteristics as board and audit committee influence of responsibilities included other issues as
composition, independence, knowledge and expertise, effectiveness, power duties and responsibilities
(Cohen et al., 2002). Hence, audit committee has the most qualifications that can increase
effectiveness.
Previous researches have several definitions of audit committee effectiveness (ACE). The BRC
(1999) describes a role of audit committee’s oversight as ensuring the quality accounting policies,
internal controls, and independent and objective outside auditors are in place to deter fraud, anticipate
financial risks and promote accurate, high quality and timely disclosure of financial and other material
information to the board, to the public markets, and to shareholders. Moreover, DeZoort et al., (2002)
defined as an effective audit committee who has qualified members with the authority and resources
to protect stakeholder interests ensuring reliable financial reporting, internal controls, and risk
management through its diligent oversight efforts. Therefore, the audit committee plays a monitoring
role or oversight activities of firm that supports to a board of director. Similarly, Kalbers and Fogarty
(1993) defined audit committee effectiveness as the competency of the audit committee to specified
oversight responsibilities in firm. This study focuses on responsibilities of audit committee that refers
to the audit committee effectiveness as a means to the achievement of audit committee to play a role
of duties and responsibilities in the firm.

In Thai context, after the Asia financial crisis in 1997, the Stock Exchange of Thailand (SET) forces to set
audit committee in Thai-listed firms. The objectives are to assist the board’s responsibilities, fulfill the
company’s corporate governance monitoring. Prior research described the role of audit committee
oversight as regarding financial statement, external audit and internal audit. This study takes an interest in
examining effectiveness of audit committee consist five dimensions as financial reporting preparation,
internal audit, business risk management, regulation practices and external audit. That is main
accountability of audit committee effectiveness in Thai context after Asia crisis. This study tries to measure
audit committee effectiveness that directly affect consequences as firm credibility, financial reporting
quality, corporate governance success and external audit efficiency. In addition, this study investigates
three antecedents, namely, corporate board accountability, audit committee competency and regulator
encouragement influence on audit committee effectiveness.
Financial reporting preparation reliability. In this study, financial reporting preparation reliability refers
to the correctness of financial reporting process that follow on Generally Accepted Accounting Principles
(GAAP) and accounting standard in order to process of financial reporting correctness and completeness.
The management has a responsibility for financial reporting of business firm. They design a system and
control the process of financial statement including suitable accounting policies. Prior researches by
Arens and Loebbeckd (2000) defined the purpose of an organization’s accounting information and
communication systems as a means to identify, analyze, record, and report an entity’s transactions
supporting accountability for the associated assets. That is principle of accounting process created to the
financial reporting correctness. Moreover, the issues of accounting process related to earning quality are
the most important for financial reporting quality which ensures the firms’ financial reporting reliability.
Also, the other issues of accounting process consider as accounting policy, accounting estimates and
adjustments of accounting. That is factors having an effect on financial reporting process correctness.
Furthermore, prior research by DeZoort, Hermanson, and Houston (2003) suggested to regulators that
they should require external auditors and audit committee to discuss several issues as qualitative aspects
of materiality, unrecorded auditor proposed adjustments and enhance auditor testing of accounting
estimates and consider requiring greater disclosure of estimate ranges. Then, the financial reporting
preparation reliability is more likely to financial reporting quality. In summary, this study assumes that when
the listed firms have the process of financial reporting correctness and complete effects on the
consequences including the audit committee spends more effort oversight in the financial reporting
process.
Internal audit effectiveness. The listed company has internal control system. Management set
internal control system and internal audit of listed company. Audit committee has a role of oversight an
internal control listed company. Then, the internal control has long been recognized as an important
feature of listed companies (Kinney, 2001). In the past evident, the regulation related to an internal
control force by the SEC. That forced was under the Foreign Corrupt Practices Act (FCPA) of 1977.
Thus, it only required being forced to ensure significant internal control deficiencies for all SEC firms.
Furthermore, the public firm is forced by the Sarbanes-Oxley of 2004. Then, the managers must review
and provide an annual report on their internal controls, assessing the effectiveness of the internal control
structure and procedures. The SEC is defined as internal control is a process, it affected an entity’s
board of directors, management and other personnel, designed to provide reasonable assurance
regarding the reliability of financial reporting. Additionally, the Committee of Sponsoring Organizations
(COSO) framework broadly defines internal control in terms of achieving as (i) the effectiveness and
efficiency of operations, (ii) reliability of financial reporting, and (iii) compliance with applicable laws and
regulations. Besides, The Sarbanes-Oxley is only related to internal control to increase the reliability of
financial reporting. Moreover, the internal controls include those safeguarding of assets (SEC, 2002).
Thus, the internal control is the most important public firm and assures the financial reporting quality.
Furthermore, the institute of internal auditors (IIA) defines internal auditing as an independent,
objective assurance and consulting activity designed to add value and improve an organization’s
operation. That enhances an organization to achieve the objectives. The internal audit can be
evaluated and improved the effectiveness of risk management, control and governance processes.
The organization can develop system by board of directors and the management in order to provide
assurance the reliability and completeness of information with the policies. Moreover, the Committee
of Sponsoring Organizations (COSO) of the Treadway Commission is internal that is a composite of
five major items according to how the management conducts business. These items are control

environment, risk assessment, control activities, information and communication, and monitoring.
Thus, this study defines the internal audit effectiveness as the achievement of internal audit objective.
That includes audit plan efficiency which covers business risk, accounting, and finance to reduce loss
of firm assets, which support rule of SET governance. In summary, the audit committee quality is
positively related to internal control (Krishnan, 2005). When firms intend to oversight internal audit
effectiveness, they review and discuss a significant issue that affects quality of financial statement.
Also, they support a success corporate accountability firm (Carcello and Neal, 2000). Then, when
audit committee reviews higher internal audit effectiveness, it tends to gain greater financial reporting
quality, corporate governance success and external audit efficiency.
Business risk management efficiency. Business risk management efficiency is defined as the level
of quality manage of business risk in current situation related to process of planning, organizing,
leading, operating and controlling approximately. The corporate differing level of risk Implementation
depends on the board awareness in managing the business risk. The business risk covers all risks, as
financial, strategies, operational and reputation risks (IFAC, 1999). The business risk affects all
activities and leads to loss of firm as assets, opportunities to growth, that inside of all process
operation. Then, the board must be aware and organize it before upon uncertain situation.
Accordingly, the influence of the COSO (Committee of Sponsoring Organizations of the Treadway
Commission) focuses on the quality of firm’s report. The COSO issues a best practice guideline for
the reporting of internal controls. In 2004, the COSO expanded the reporting of internal controls to
the enterprise risk management in the framework. Thus, the enterprise risk management
implementation is a process affected by board of directors, management and related personal to
responsibilities on the corporate. Currently, the role duties of audit committee oversight or review the
evaluation of business risk in current situation is related to process business risk efficiency as the risk
reduces the level approximately. The COSO identifies components of enterprise risk management
and makes direct relationship between the aforementioned concepts and organizational objectives,
including strategy, operation, reporting and compliance.
Prior research study used five classes as culture, leadership, alignment, systems, and structure to
measure of enterprise risk management (Drew, Kelley and Kendrick, 2006). That integrated elements
firm’s ability to manage risks, engage in effective corporate governance and implement regulator
changes. The measurement of degree of business risk implementation focuses on the general steps to
tradition risk managers (Ackerman, 2001). It identifies the questions, identify risks, risk measurements,
formulated strategies to limit risk, implement strategies and monitor results. In summary, the degree of
risk implementation appears in influence firm operation. Certainly, if the audit committee helps oversight,
they can reduce a level of corporate risk approximately which will help improve a higher financial quality
and going concern corporate governance success.
Regulation practice achievement. Regulation practices achievement is defined as the success to

practices relevance rule of firms, including, law, rule, code of conduct and policy. The Stock Exchange
of Thailand (SET) focuses on duties of audit committee shall be reviewed and modified regular to
ensure suitability. Moreover, they review performance of corporate to ensure the compliance on law of
capital market, and all law relating to business of limited company. The SET has various laws force to
listed firm implement. The objectives of audit committee are to oversight compliance rule of corporate.
That assists board of directors in handing the issues which might be overseen and ensures a good
monitoring system with a business. The directors, managers, external auditors, and internal auditors
have direct interest in the efficiency of the audit committee. Because the audit committee assists them to
achieve their legal responsibilities and fulfilling their management function as success professional.
Thus, the aim of the establishment an audit committee was to create efficiency in the operations and to
add value of the organization each of all aim is compliance with applicable regulation and laws.
Moreover, the SET to enforce the listed firms must have internal control system, and should be internal
audit. Included all above is rule to force by capital market for listed firm is stronger its lead to corporate
governance success. In summary, if listed firms intend to implement completeness related all rule, they
will achieve corporate governance success.
Independence auditing process. Independence auditing process is defined as the process manages of
audit quality, including select auditor, set auditor, consider audit fee, co-meeting without management and
encourage auditor to present straight opinion. Prior research indicates that external audit is corporate

governance mechanism of firms in the UK and the US. There is function of audit quality and the
assurance provided by auditors (Krishnan and Ye, 2005; Anderson, Kadous, and Koonce, 2004). Similarly,
Ashbaugh and Warfield (2003) suggest that stakeholders want reliable financial information, that external
audits play role of governance are needed. The independent audit has an important of governance (Allen,
Linville, and Scott, 2005; DeFond, Wong and Li, 2000). Therefore, independence is needed of quality
external auditors. They serve an effective monitoring of firm (Ashbaugh and Warfield, 2003; DeFond,
1992). In prior research, quality of auditor has several factors as independence, expertise, audit fee, and
audit size. The auditor quality can assure the credibility of financial reporting (Farbar, 2005; Cohen,
Krishnamoorthy, and Wright, 2002). That affects reliability of shareholders and all parties. Therefore, listed
firms consider quality of external auditor. Accordingly, the regulation improves related of rule external
auditor for listed firms. In addition, with Sarbanes-Oxley rule, the audit committee has responsibility to hire
and fire the external auditor (SOA, 2002). Currently, audit committee has a role of manage external
auditor. They select quality auditor to serve as governance mechanism. They consider issue related to
quality of auditor as independent, experience of audit, team work, non-audit service, that ensures for
quality service and increases reliable financial information. Then, firms with audit committee intend to
select external auditor quality that gains greater financial reporting reliability, success of governance and
external audit efficiency.
3.2 Audit Committee Effectiveness and Consequences
Financial reporting quality. Financial reporting quality is important as it is related to both an actor
and user in corporation. It has two of view points. Firstly the internal actor is a preparation financial
reporting, as management, board, accountant, internal auditor, and audit committee, who must
provide most of financial reporting quality. Another side of user, in prior research has treated of user
as investor, analyst, auditor, and borrower. They expected better of financial reporting, and require
financial reporting quality to various activities. The quality is a transparency of financial reporting that
represents the underlying business (Levitt, 1999). The objectivity, accuracy, and fairness lead to
credible information, the annual report’s credibility depends on the degree to correct, complete, and
objective. Disclosure and transparency are important factors of high quality reporting. Then, the
financial accounting quality has represented events and transaction faithfully of company. The FASB
concepts Statement 2, Qualitative Characteristics of Accounting Information defined quality as a
hierarchy of accounting qualities, with relevance and reliability considered the primary ones.
Additionally, the statement has a set of criteria such as representational faithfulness, verifiability,
neutrality, predictive value, feedback, comparability, consistency, and timelines. Moreover, the
financial reporting reliability refers to information in financial statement which is free from material
error, and bias that can be depended upon by user to represent events and transactions faithfully
(IASB, 2001). This study defines the financial reporting quality as the characteristic of information in
financial statement efficiency, that comprises four dimensions as understandability, relevance,
comparability and reliability. The reliability includes accounting information on faithful representation,
substance over form, neutrality, conservatism, and completeness (Accounting framework, 1999).
Therefore, the audit committee has an oversight the financial reporting process that increases a
reliable of financial reporting. Thus, this study proposes the hypothesis as below:
Hypothesis 1: The higher the audit committee effectiveness is, the more likely that firms will gain
greater financial reporting quality.
Corporate governance success. This study defines corporate governance success in Thai context as
the achievement of corporate governance that relates to managed rule practices of transparency and
accountability under the Stock Exchange of Thailand (SET). The firm achieves governance success,
when board of director managed and control operation efficiency as fairness, integrity, transparency and
disclosure. They afford to tried duty of responsibility success. The primary meaning of corporate
governance is the control resources of firms, and it concerns with the institutions that influence how
business corporations allocate resources and returns. The Public Oversight Board (POB, 1993) defined
corporate governances as those oversight activities undertaken by the board of directors and audit
committee to ensure the integrity of the financial reporting process. That has a narrow view of corporate
governance restricting it only to monitor activities. In other words, the fact of corporate governance may
potentially gain more value to other outsides. Such as, Larcker, Richardson and Tuna, (2004) suggests
a corporate governance framework should consider all major stakeholders in the corporate governance

view. It is included both inside and outside of the listed firms. Hence, the external auditors play
significant a role of monitoring financial reporting quality. The firm has an good corporate governance
in order to access the world’s capital markets. That important point of view corporate governance as
operation practice has a transparency and accountability. That is an increase firm credibility on public in
the long term. Therefore, this study defines corporate governance success in Thai context as the
achievement of corporate governance that related to managed rule practices of transparency and
accountability under the Stock Exchange of Thailand (SET). Therefore, this study proposes the
hypothesis as below:
greater corporate governance success.
External audit efficiency. External audit efficiency refers to firm’s achievement of audit quality. In prior
researches, audit quality is an operational as the likelihood that auditor will discover a material error and
disclose the error in the audit opinion (DeAngelo, 1981). In addition, the audit quality refers to two
components: the ability to detect misstatements and the willingness to report the misstatements
uncovered in an audit engagement (Lee Stockes, Taylor and Walter, 2003; Copely and Douthett, 2002;
DeAngelo, 1981). Besides, the Federation of Accounting Professions of Thailand issues rule of auditor
qualifies as expertise, experience, and code of ethics to audit practices. Moreover, they force the auditor
compliance to follow the Generally Accepted Auditing Standard (GAAS) and audit international
standards. Thus, this study defines the external audit efficiency as the firm’s achievement of audit
quality. That relates to audit plan practice, audit report and audit opinion independence and
transparency under the GAAS.
With corporate governance, all stakeholders believe that independent external auditor assures the
financial reporting. Thus, they expect to get information correctness form financial reporting. Then,
external auditors have qualified expertise and experience to audit plan and practice with the Generally
Accepted Auditing Standard (GAAS). That assured primary assurance of audit process quality next to
ensured the financial reporting quality. Moreover, external auditors are able to present independent
opinion in audit report. Practices of governance issue audit committee consider operation of external
auditor. Similarly, the Sarbanes-Oxley (2002), suggests that auditors must be prepared to discuss
with the audit committee related to the quality and acceptability of financial statement issues. The
issues of auditor discussed with audit committee under earning management such as unexpected
discretionary accruals. Since audit committee can play a role of auditor selection, assessment of audit
quality are increased reliable of financial reporting. In prior evidence, the more independent of audit
committees will demand, the higher quality of external audit and willing to approve higher audit fees.
Also, the external auditor more independent to audit the firm clients with connection encompasses an
audit committee. They have increased an audit quality of the listed firms. That leads to firm achieve
external audit efficiency. Therefore, this study proposes the hypothesis as below:
greater external audit efficiency.
Firm credibility. This study applies relevant prior literatures. The marketing study found that brand equity
and reputation are related (Aaker, 1996). That is associated with the credibility of the firm (Herbig, Milewicz
and Golden, 1994). Although the vocabularies are differently defined that one can observe the consensus
on the essence of the concept of corporate reputation. It means the result is past good actions for firm.
Herbig and Milewicz (1993) defined reputation as estimation of the consistency over time of an attribute of
an entity. The other one is an attribute as management quality. To clearly understand the concept of
corporate reputation related to association with credibility, the credibility of a firm is viewed as the
believability of its stated intentions, the credibility is when firm say it and do it actually. The reputation of a
firm can create credible action that makes a good action also that easy break with a bad action. Then, firm
has perceived acting external perceptions good action stronger than bad action (Herbig, Milewicz, and
Golden, 1994). This study implies meaning generally accepted for credibility concept that has the external
perceptions for the management quality of listed firms. The management quality is the same as the good
corporate governance practices or good acting with regulation rule. Thus, this study defines firm credibility
as the firm’s perception of public both believability and integrity that related to a good corporate
governance. The Stock Exchange of Thailand (SET) has rule of corporate governance composite four

main items as the firm strict operate within governance, intensive of rule practices, information most
reliability and timeliness, and concentrate of moral and ethic. That applies when firms have the most of
governance management, which is good view for the success to the firm credibility. Hence, the audit
committees are mechanism governance. They oversight responsibilities of firm operations that enhance
corporate governance. Then, the effectiveness of audit committee is positive to firm credibility when they
higher oversight their functions. That is good action effective to public percept reputation of firm. Firm that
increases effectiveness is more likely to gain greater firm credibility. Therefore, this study proposes the
greater firm credibility.
3.3 Mediating Effects of the Relationship
Financial reporting quality. This study defines financial reporting quality as the characteristic
information in financial statement efficiency that including four dimensions as understandability, relevance,
comparability and reliability. Moreover, the reliability is faithful representation, substance over form,
neutrality, conservatism, and completeness (Accounting framework, 1999). The financial report quality is
most important for all parties. It reflects real operation of business. That is utilization for all parties as
actors and users. They expect the financial reports are accuracy and relevance business that increase
confident to decision making of all users. The audit committees provide oversight financial reporting and
auditing processes of listed firm (BRC, 1999; NACD, 2000; POB, 1993, 2000; Treadway Commission,
1987; Wolnizer, 1995). They support quality information for making decision of all users. Hence, this study
believes that the audit committees will be more effectiveness in helping to ensure a transparency and
integrity of financial reporting (BRC, 1999). Thus, the financial reporting has quality more likely firm gain
reliability in operation. When all users perceived the financial reporting quality, it is more likely to gain
greater firm credibility. Therefore, this study proposes the hypothesis as below:
Hypothesis 5: The higher the financial reporting quality is, the more likely that firms will gain greater
firm credibility.
Corporate governance success. The corporate governance has an extensive to many

consequences both an efficiency of company and overall efficiencies of economies. This study
applies corporate governance success that affects a firm credibility. The companies will be expected
to demonstrate good corporate governance in order to access the world’s capital markets (Price
Waterhouse, 1997). Regarding audit committee, recently, various sectors have attempted to enhance
to the role of audit committee to address governance in many countries, followed by significant
corporate failures as Enron. Subsequently, the Asia crisis causes an effect on corporate failures
because it lacks the governance. With the regulation in many countries to control the audit committee
within governance such as Cadbury, (1992) in the UK, AARF, (1997) in Australia and Blue Ribbon
Committee (1999) in the US, they attempt to develop the rules for audit committee in the governance
policy. Including, the Stock Exchange of Thailand (SET) attempts to improve the rule related to
governance with audit committee responsibility. Therefore, this study defines corporate governance
success as the achievement of corporate governance related to manage rule practices of
transparency and accountability under the SET.
Several of events rise to all sections related public company that must corporate governance. The investor
must be confident in a governance practice. The Stock Exchange of Thailand (SET) generates and forces
a good corporate governance’s specification for the listed firms in year 1999. The SET describes
corporate governance in four dimensions as fairness, transparency, accountability and responsibility (SET,
2003). Moreover, they set audit committee to assist the board monitoring of corporation. Accordingly, the
Public Oversight Board (POB, 1993) defined the corporate governances as those oversight activities
undertaken by the board of directors and audit committee to ensure the integrity of the financial reporting
process. The company has an audit committee that may boost investor confidence in governance practice
(Price Waterhouse, 1997). The corporate governance is the most important of a listed firm relevant to
inside and outside, if the listed firms have a good corporate governance, the public perception will achieve
the governance of operation. The listed firms have reputation of governance in order to increase a

credibility of firms. This study uses a conceptual governance relationship between corporate governance
success and firm credibility. Therefore, this study proposes the hypothesis as below:
Hypothesis 6: The higher the corporate governance success is, the more likely that firms will gain
greater firm credibility.
External audit efficiency.

The external audit ensures management of firm, and it is carried out by external auditors. Thus, the role
of external auditor is confident in financial reporting of firm. The public firm used corporate governance
with audit monitoring to enhance the credibility of corporate reports, and to promote smooth
development of capital market. DeAngelo (1981) suggests that the auditor independence is joint
probability that auditors will find and report misstatement in the financial statement and suggests the
quality of an auditing firm that is positively associated with firm size or the firm’s market share. The high
quality auditing can improve corporate governance and use audit with high quality auditor (Lin and Liu,
2009). The independent auditor makes audit quality stronger. The audit quality refers to the ability to
detect misstatements and willingness to report the misstatements uncovered in an audit engagement.
This study defines external audit efficiency as the firm’s achievement of audit quality. It relates to audit
plan practice, audit report and audit opinion independence and transparency under the Generally
Accepted Auditing Standard (GAAS). The quality and independence of auditors have a standard
practice of audit service. Therefore, when the listed firms have audit quality, that is, external auditing
efficiency is positively associated with firm credibility. Thus, this study proposes the hypothesis as
below:
Hypothesis 7: The higher the external audit efficiency is, the more likely that firms will gain greater firm
credibility.
3.4 Antecedents of Audit Committee Effectiveness
Corporate board accountability. The corporate boards set up with trust and qualification from
shareholders. They have been playing a role controlling and monitoring all of business operation and
to serve preventing interest of all shareholders. The Stock Exchange of Thailand (SET) issues rule of
the board responsibilities that creates a good corporate governance of the listed firms (SET, 2002).
Corporate boards have prominent board characteristics as board independence, trustworthiness,
leadership. Then, corporate boards must be careful and active for operation like the owner (OECD,
2004). In general concept, the corporate board is characteristics as leadership, vision, independent to
decision making. Moreover, they have an experience and expertise to support the business operation
including the effort that creates the strength of firms. Hence, this study defines corporate board
accountability as the characteristics of corporate board concentrate the process of business operation
that keeps on code of ethics, transparency and trustworthiness. The composition of board director is
separated into three groups: executive director, independent director include the audit committee, and
outside director. The Stock Exchange of Thailand (SET) requires independent directors to have at
least three of all, and at least three independent directors. Moreover, the chairman of board must be
independent, that is, without related to management. Prior research found the board composition in
governance associated with lower rates of firm failure (Black, Jang, and Kim, 2006). In addition, Fama
and Jensen (1983) argue the outside directors will value their reputation. They will motivate paying
time and effort to protect stockholders next to their own reputation. Then, the corporate board
accountability enhances of corporate governance effectiveness. Currently, the board of director has a
role of duty to be approved as vision, mission, strategies business, business risk, planning, and budget to
controlling and monitoring the top management to succeed in business goal through efficiency and
effectiveness (SET, 2002). The corporate board helps listed firms to achieve corporate governance, and
audit committee is a mechanism of governance. Hence, board corporate accountability has direct positive
audit committee effectiveness, when the board corporate concentrates on business operation. They have
improved a governance of firm that enhanced effectiveness of audit committee’s oversight. Therefore, this
study proposes the hypothesis as below:
Hypothesis 8: The higher the corporate board accountability is, the more likely that firms will gain
greater audit committee effectiveness.

Audit committee competency. The audit committee competency is most important for governance
mechanism. Audit committees are independent director of listed firms, who are selected to monitor or
oversight business operation to assist the board. The Stock Exchange of Thailand (SET) issues the rules
for audit committee that must be an independent, hold share of right not surplus one percentage, and not
related party transaction pass two year ago (SET, 2008). Moreover, they require expertise and experience
related to audit, accounting, and financial issues of business (SET, 2008). Hence, the audit committees
have most qualifications. This study defines audit committee competency as the characteristics of audit
committee to have unique ability to oversight duties. In prior research, the characteristics of AC create AC
effectiveness, financial reporting quality and other factors. In previous studies, characteristics of AC
members have an effect on AC effectiveness as independent (Abbot and Parker, 2000), expertise
(DeZoort, 1997), active (Kalbers and Forgarty, 1993), knowledge, meeting, and communication. Certainly,
the audit committee competency is the unique competency of audit committee as independence,
experience, expertise, and diligence (DeZoort et al., 2002) that improve their oversight role. Then, the audit
committee competency has a positively relationship the audit committee effectiveness. Based on the
connection of AC competence would appear to enhance the audit committee’s oversight function that
relates directly to increasing the audit committee effectiveness. Therefore, this study proposes the
Hypothesis 9: The higher the audit committee competency is, the more likely that firm will gain greater
audit committee effectiveness.
Regulator encouragement. After Asia crisis of 1997, both regulators and standard setters improve all
rule-related companies as accounting standard and rule of governance. Consequently, the Stock
Exchange of Thailand (SET) and Securities and Exchange Commission of Thailand (THAI-SEC) require
the listed firms set audit committee of listed firms in 1999. The rules of governance and accounting
standard are strengthen practice in listed firms. Also there improves a both continuous and consensus
international standard. The issues are the best practice guideline of governance including guideline of audit
committee to support a good governance of listed firms. Thus, this study defines regulator encouragement
in Thai context as the climate’s intense force practices related rules and law under control by SET in the
listed firms. Generally, the corporate governance is a significant way to safeguard the interest of
company’s stakeholders. The corporate governance increases the reliability of investor expectation benefit
fairness’s securities stock market. In global, the Sarbanes-Oxley Act (2002) has significantly impacted all
directly players in the corporate governance structure. Under Sarbanes-Oxley, audit committee has a
responsibility to hire and fire the auditors and approve the non audit service. Past studies found that firms
with audit committee are less likely to have illegal acts (McMullen, 1996; DeFond and Jiambalvo, 1991). In
summary, the regulator encouragement both global and Thai context are similar climate. When, the
regulators concentrate on the rule of governance and best guideline support to the audit committee duty.
That increases effectiveness of audit committee responsibility. So, this study takes interests in the
regulator encouragement which is more likely to enhance the audit committee effectiveness. Therefore,
this study proposes the hypothesis as below:
Hypothesis 10: The higher the regulator encouragement is, the more likely that firm will gain greater
audit committee effectiveness.
3.5 The Moderating Effects of the Relationships

The professional management orientation is a moderator variable that is important for management firm.
The managements are the leaders of company’s management teams. There is a variety of names e.g.,
managing director, CEO, top management and manager. The CEO defines as the person who is the
head of the company’s management team. The CEO differs in leadership styles. The part studies
present the transformation leadership is a long term theory (Burns, 1978). This theory supports to active
CEO (Spangler, 1990). The transformation leadership borrows from Burns (1978) is similar to many
respects to the work (Tichy and Devanna, 1986), and it incorporates much of the work of House (1977)
and Weber (Gerth and Mills, 1946) on charisma. The transformation leadership is somewhat
independent of organizational structure and relies on the personality, beliefs, and behavior of leaders
and subordinates. This study is related to apply professional CEO. Who is an active management style
and concentrate on managing corporate under governance. Prior research indicated that the stronger
internal governance structures demand higher quality and audit.

Under the competitive economic of business, the leadership effects to the firms develop themselves
for survival. The leadership competency is the most important to firm. Moreover, the moral leadership
is most important. Then, the firm success foundation is based on moral and code of ethics. Previous
evident indicate that the CEO who lacks moral and ethics will affect the operation of firm as Enron and
WorldCom etc. Thus, the professional CEO concentrates on moral and ethics. Then, if the firms have
leadership of moral, it will lead to successes of corporate governance and the acceptance of social
responsibility. Therefore, the firms have a professional CEO to concentrate on manage the business
performance within the professional CEO styles as vision within by action, human relationship,
leadership, moral and business ethics, chief change officer, and experience and talent. Including, they
concentrate on formal to coordination staffs create an experience, expertise and relationship, that
gains strangler good corporate governance and achieve to goals rapid growth of the listed firms.
The corporate board controls and monitors overall business operation. When the board accountability
supports and consults important issues with management, the profession management concentrates on
managing firm with knowledge and experience on environment business. That improves efficiency and
effectiveness of performance with audit committee responsibility. Therefore, the professional
management orientation tends to moderate the relationship between corporate board accountability and
audit committee effectiveness. Therefore, this study proposes the hypothesis as below:
Hypothesis 11: The higher the professional management orientation is, the greater the relationship
between corporate board accountability and audit committee effectiveness will be.
The audit committees have oversight function of listed firms. They have competency to review corporate
operation. The competency can improve efficiency and effectiveness of their function. When the
professional management intends to operate firm within competitive advantage, they manage to change
environment for firm survival. Their review and evaluate are most important, including transparency and
accountability of firm needed. That enhances effectiveness of audit committee monitoring. Hence, the
professional management orientation tends to moderate the relationship between audit committee
competency and audit committee effectiveness. Therefore, this study proposes the hypothesis as below:
between audit committee competency and audit committee effectiveness will be.
The public firms need to trade in capital market. The public firms have efficiency and effectiveness
operation in global. The Stock Exchange of Thailand (SET) and Securities and Exchange Commission of
Thailand (THAI-SEC) force and monitor rule practice of listed firms. Firms with professional management
intend to practice rules, law related to business. That leads to governance firm success. The audit
committees set within governance mechanism. They oversight all activities of business, including rule
practices. They can increase effectiveness of their responsibility. Hence, firm with professional
management orientation tends to moderate the relationship between regulator encouragement and audit
committee effectiveness. Therefore, this study proposes the hypothesis as below:
between regulator encouragement and audit committee effectiveness will be.
4. RESEARCH DESIGN
4.1 Population and Sample

Thai-listed firms in Thailand are population of this study. Firms have force practice corporate
governance. Therefore, they have set up audit committee to oversight function in companies. Thai-
listed firms were appropriate population. 550 listed firms have been currently operated as listed in the
Stock Exchange of Thailand (SET). Based on this database, excluded 22 mutual funds, because they
are not related to corporate governance and audit committee of listed firms. Thus, it remains 528 firms in
the final population of this research.
4.2 Data Collection

An instrument package is distributed to each key informant who can give the reality of information and
provides the truly understanding on its business of the firms. Moreover, the key informant has the

understanding of the role of audit committee responsibility. The internal audit managers have work related
to audit committee and they can give the overall information of the firm. The appropriate key informant is
internal audit manager of each Thai-listed firm.
The questionnaire is constructed by each of constructs’ definition and related literature and that designed
on five-point Likert scale. This study is checked by two experts academics, any misunderstanding has
reduced to avoid ambiguities. All constructs are the abstractions. That cannot be directly measured or
observed and should be measured by multiple items (Churchill, 1979). With regard to the questionnaire
mailing, four of listed firm surveys are undeliverable because they had moved to unknown locations.
Removing the undeliverable from the original 528 mailed, the valid mailing is 524 surveys, from which 149
responses are returned. Three mails were found incomplete and response errors in some questionnaires,
they are deducted from data analysis accordingly. The surveys completed and received, only 146 are
usable. The effect response rate is 27.87 percent. According to Aaker, Kumar and day (2001), 20
response rates for a mail survey is sufficient.
4.3 Test of Non-Response Bias

After achieving questionnaires, this paper checks non-response bias assessed by comparing early to
late respondents. This study used comparison some demographics of listed firms. The non-response
bias was investigated to separate the half 50 percent return first and last by t-test statistic, and result
shows that there is no significance. That no differences between early and late responses. Therefore,
it confirms significant differences between responses and non responses.
4.4 Variable Measurements

This paper uses questionnaire for collecting data. The variables measurements of dependent,
independent, moderator and mediator variables are described as below:
Dependent variable. Firm credibility is final dependent variable. That construct is developed as a new
scale that measured using four-scale items. Firm credibility is defined as the firm’s perception of public
admits both believability and integrity.
Independent variables. Audit committee effectiveness is the main construct developed from a role of
audit committee oversight responsibility. Audit committee effectiveness refers to the achievement of
audit committee to play role duties and responsibilities in the firm. This study measures and defines
five dimensions as explained as follows:
1) Financial reporting preparation reliability refers to the correctness of financial reporting process that
follows from GAAP and accounting standard in order to process of financial reporting correctness and
completeness. Altogether, choices of accounting policy are estimated and adjusted properly.
2) Internal audit effectiveness refers to the achievement of internal audit objective. Including audit plan
efficiency it covers business risk, accounting, and finance for reduce loss of firm assets. Moreover, that
supports rule of the SET governance.
3) Business risk management efficiency refers to the level of quality manage of business risk in current
situation related to process of planning, organizing, leading, operating and controlling approximately
(COSO, 2005).
4) Regulation practices achievement refers to the success to practices relevant rule of firms that
include law, rule, code of conduct and policy.
5) Independence auditing process refers to the management for external audit quality, including selected
auditor, setting up, considering audit fee, co-meeting without management and encouraging auditor
presents straight opinion.
Mediating variables. There are three mediators to be measured as discussed below:

1) Financial reporting quality is defined as the characteristics of information in financial statement
efficiency, including four dimensions as understandability, relevance, comparability and reliability. The
reliability included faithful representation, substance over form, neutrality, conservatism and
completeness (Accounting framework, 1999).
2) Corporate governance success refers to the achievement of corporate governance that related to
managed rule practices of transparency and accountability under the SET.
3) External audit efficiency refers to the firm’s achievement of external audit quality. That is related to
audit plan practice, audit report and audit opinion independence and transparency under the GAAS.

Antecedent variables. The antecedence variables have three factors to be measured as discussed
below:
1) Board corporate responsibility refers to the characteristics of corporate board concentrates on a
process of business operation, including keeping codes of ethic, transparency and trustworthiness.
2) Audit committee competency refers to the characteristics of audit committees that have unique ability
to oversight duties. A person who will be nominated audit committee of firm, they must satisfy the
following: independence, experience and expertise of oversight as accounting, financial, and auditing
related items of firm, moreover, communication with other parties and efforts to oversight function.
3) Regulator encouragement refers to the climate’s intense force practices related rule and law under
the control of the SET in listed firms. The regulation with an issues and enforce of rule, both
continuous improvement and consensus international of rule. Moreover, best practices guideline for
listed firm.
Moderating variable. Professional management orientation is moderating variable. It refers to the

degree of management of the professional leadership. The management of firm concentrated on vision
with action of professional management firm, and human relationship to coordination operation,
leadership, experience, chief change officer and intent of code of ethics.
4.5 Reliability and Validity

For clear validity and reliability, Cronbach’s alpha is used to prove the multi-item in order to measure
the reliability of data. An alpha coefficient should be higher than 0.70 (Nunnally and Bernstein, 1994)
to be sure of internal consistency and the stability of instrument. For testing the validity, factor analysis
is used to prove construct validity. The factor loadings of each construct should present a value higher
than 0.4 in order ensure the construct validity. Thus, a higher rule-of-thumb of factor loading used a
cut-off value of its (Nunnally and Bernstein, 1994). Table 1 shows the results of factor loadings and
Cronbach’s alpha for multiple item scale. That shows all variables that have factor loading score
between 0.67 – 0.94 implying that there is the construct validity. Moreover, the Cronbach’s alpha
coefficients for each key variable shows between 0.84 – 0.95. Therefore, the reliability of all variables
is accepted.
TABLE 1
RESULTS OF MEASURE VALIDATION
Variables Factor Loadings Cronbach’s Alpha

Audit Committee Effectiveness (ACE) 0.80-0.89 0.95
Financial Reporting Preparation Reliability (FRPR) 0.70-0.86 0.84
Internal Audit Effectiveness (IAE) 0.72-0.86 0.87
Business Risk Management Efficiency (BRME) 0.82-0.90 0.89
Regulation Practices Achievement (RPA) 0.67-0.89 0.86
Independence Auditing Process (IAP) 0.78-0.87 0.87
Financial Reporting Quality (FRQ) 0.81-0.89 0.90
Corporate Governance Success (CGS) 0.86-0.91 0.87
External Audit Efficiency (EAE) 0.90-0.94 0.91
Firm Credibility (FC) 0.92-0.94 0.95
Corporate Board Accountability (CBA) 0.79-0.92 0.92
Audit Committee Competency (ACC) 0.82-0.89 0.93
Regulator Encouragement (RE) 0.85-0.90 0.90
Professional Management Orientation (PMO) 0.87-0.91 0.94
4.6 Statistical Techniques

Ordinary least squares (OLS) regression analysis is chosen to estimate coefficients affecting the
influence of ACE on firm credibility, financial reporting quality, corporate governance success, and
external audit efficiency because all constructs are the metric scales. In order to meet this objective,
the following equations are tested as follows:

Equation 1: FRQ = 01+1ACE+2SIZE+3LEV+1
Equation 2: FRQ = 02+4FRPR+5IAE+6BRME+7RPA+
8IAP+9SIZE+10LEV+2
Equation 3: CGS = 03+11ACE+12SIZE+13LEV+3
Equation 4: CGS = 04+14FRPR+15IAE+16BRME+17RPA+
18IAP+19SIZE+20LEV +4
Equation 5: EAE = 05+21ACE+22SIZE+23LEV+5
Equation 6: EAE = 06+24FRPR+25IAE+26BRME+27RPA+
Equation 7: FC = 07+31ACE+32SIZE+33LEV+7
Equation 8: FC = 08+34FRPR+35IAE+36BRME+37RPA+
Equation 9: FC = 09+41FRQ+42CGS+43EAE+44SIZE+45LEV+9
Equation 10: ACE = 10+46CBA+47ACC+48RE+49SIZE+50LEV+10
Equation 11: ACE = 11+51CBA+52ACC+53RE+54PMO+55(CBA*PMO)+
56(ACC*PMO)+57(RE*PMO)+58SIZE+59LEV+11
Where;
ACE = Audit Committee Effectiveness,
FRPR = Financial Reporting Preparation Reliability,
IAE = Internal Audit Effectiveness,
BRME = Business Risk Management Efficiency,
RPA = Regulation Practices Achievement,
IAP = Independence Auditing Process,
FRQ = Financial Reporting Quality,
CGS = Corporate Governance Success,
EAE = External Audit Efficiency,
FC = Firm Credibility,
CBA = Corporate Board Accountability,
ACC = Audit Committee Competency,
RE = Regulator Encouragement,
PMO = Profession Management Orientation,
SIZE = Firm Size,
LEV = Leverage,
 = Coefficients and
 = Error term
5. RESULTS AND DISCUSSION
This study examines the relationship between audit committee effectiveness and consequents. That
analyzed by OLS regression model. The results are presented in Tables 2, 3, and 4 later. Table 2
exhibits descriptive statistics and correlation matrix for all variables. To clearly understand
multicollinearity problem, Variance Inflation Factor (VIF) is used to ensure the multicollinearity
problem and VIFs that well below the criterion of 10 (Neter, Wasserman, and Kutner, 1985). The
results showed that VIFs range from 1.029 – 5.896, as well as below the cut-off, implying that all
independent variables are not correlated with each other. Therefore, there are no multicollinearity
problems in this study.
Table 3 exhibits the results of OLS regression analysis. Regarding two control variables except
Equations 1, 2 and 4 indicate that two variables have no influence on dependent variables. However,
firm size may affect financial reporting quality and corporate governance success that should be
careful in interpretation. The Equation 1 indicates audit committee effectiveness is positively related
with financial reporting quality (1=.575, p< 0.01).

TABLE 2
DESCRIPTIVE STATISTICS AND CORRELATION MATRIX
Variables ACE FRPR IAE BRME PRA IAP FRQ CGS EAE FC CBA ACC RE POM
Panel A:
Mean 4.1960 4.0849 4.2979 4.0959 4.1466 4.3545 4.4356 4.3607 4.4041 4.2705 4.3589 4.3801 3.9777 4.2808
Standard 0.5188 0.6280 0.5637 0.6147 0.6117 0.6058 0.5069 0.5853 0.5299 0.6021 0.5905 0.5381 0.6708 0.6092
deviation
Panel B:
ACE 1.0000
FRPR .798*** 1.0000
IAE .868*** .614*** 1.0000
BRME .856*** .602*** .665*** 1.0000
PRA .892*** .588*** .687*** .789*** 1.0000
IAP .884*** .567*** .757*** .621*** .755*** 1.0000
FRQ .566*** .373*** .476*** .459*** .581*** .536*** 1.0000
CGS .581*** .403*** .472*** .505*** .594*** .515*** .870*** 1.0000
EAE .614*** .394*** .529*** .490*** .617*** .598*** .831*** .837*** 1.0000
FC .541*** .400*** .476*** .399*** .539*** .507*** .719*** .784*** .758*** 1.0000
CBA .670*** .479*** .609*** .586*** .586*** 616*** .674*** .680*** .688*** .680*** 1.0000
ACC .724*** .526*** .643*** .574*** .663*** .700*** .646*** .667*** .762*** .632*** .746*** 1.0000
RE .590*** .394*** .509*** .565*** .569*** .493*** .456*** .594*** .507*** .578*** .638*** .582*** 1.0000
POM .652*** .419*** .595*** .583*** .618*** .578*** .680*** .716*** .718*** .749*** .806*** .797*** .683*** 1.0000
*Correlation is significant at the 0.10 level (2-tailed)
**Correlation is significant at the 0.05 level (2-tailed)
***Correlation is significant at the 0.01 level (2-tailed)

Firms with higher of audit committee effectiveness tend to increase financial reporting quality.
The result demonstrates that audit committee of firm have higher role of responsibility to
oversight activity of firm tends to gain greater effectiveness. Specifically, when firms have audit
committees review the process of quarterly and yearly financial reports in order to correctly and
completeness. The cause of change in significant accounting policies and the adjusting entries
of accounting tend to increase financial reporting quality. Hence, hypothesis 1 is strongly
supported. In addition, Equation 2 shows that two dimensions of ACE as regulation practices
achievement and independence auditing process have a positive effect to financial reporting
quality (7=.402, p< 0.01,8=.229, p< 0.10). That indicates firm intent to rule practices and
oversight external auditing more influence on financial reporting quality than other dimensions.
The result in Model 3 to tested Equation 3 indicates that audit committee effectiveness is
significant positively related with corporate governance success (11=.586, p< 0.01). Firms
with higher effectiveness of audit committee tend to increase achievement of corporate
governance. Corporate governance is related to manage rule practices of transparency and
accountability under the rule’s SET. Accordingly, DeZoort et al., (2000) suggested that firms
have structured communication programs between internal auditor and audit committee can
help improve quality of corporate governance. Firms that have audit committee higher review
as financial reporting process, internal audit, business risk, regulation practices and
independent auditing management tends to have higher corporate governance success. The
reason is firms with audit committee review operation of practice within governance rule are
more likely to gain the corporate governance success. Hence, hypothesis 2 is strongly
supported. Furthermore, the result of Equation 4 shows only dimension of ACE as regulation
practices achievement has a positive effect on corporate governance success (17=.398, p<
0.01). It indicates that the regulation practice achievement mostly influences corporate
governance success than other dimensions.
Model 5 tested Equation 5 indicates that audit committee effectiveness is significant positively
related with external audit efficiency (21=.620, p< 0.01). Firms with higher degree of effective
audit committee tend to more likely external audit efficiency. They are more likely to select
specialist external auditors (Abbot and Parker, 2001). They are also willing to review firm
activities as selects and nominate external auditor, consider issues problem or barrier with
audit item in the financial statement, reinforce the external auditor going independence and
be able to limit to present straight opinion that tends to increase the firm’s achievement of
external audit quality. This implies that firm has good external auditor prepare audit plan
practice, audit report and audit opinion independence and transparency under the GAAS.
Therefore, firms with higher audit committee effectiveness tend to have higher external audit
efficiency. Hence, hypothesis 3 is strongly supported. Additionally, the result of Equation
6 shows that only two dimensions of ACE as regulation practices achievement and
independence auditing process have a positive effect on external audit efficiency (27=.378,
p< 0.01,28=.300, p< 0.05). That indicates that firm intends to rule practices and oversight
external auditing more influence on external audit efficiency than other dimensions.
The result of Equation 7 indicates that audit committee effectiveness is positively related with firm
credibility (31=.540, p< 0.01). Firms which higher degree of effectiveness audit committee tend to
increase corporate transparency and accountability. That is the information of firm shows in
financial reporting quality. It reflects real economic of firm to public or users information, which
firms with good governance tend to improve firm reputation. Then, firms with good governance are
higher efficiency and effectiveness. The public can perceive of good operation of firms in financial
reporting reliability as correctly, completeness, reliable and timeliness, lead to gain firm credibility.
Hence, hypothesis 4 is strongly supported. Furthermore, the result of Equation 8 shows only
dimension of ACE that has regulation practices achievement positively affects firm credibility
(37=.413, p< 0.01). That indicates the regulation practices achievement as the most important of
firm to influence more firm credibility than other dimensions.
The investigation is the relationship among financial reporting quality, corporate governance
success, external audit efficiency and firm credibility. In Model 9, the corporate governance

success is significant positively related with firm credibility (42=.482, p< 0.01). Hence, hypothesis
6 is strongly supported. The result indicates that firm with intended governance practices gains
public perception at higher level firm credibility. Consistently, the external audit efficiency is
significant positively related with firm credibility (43=.340, p< 0.01). Then, firms with higher level
efficiency of external audit they have gain public perceive firm credibility. Hence, Hypothesis 7 is
also strongly supported. Besides, financial reporting quality related to process and presents
financial information. The quality of financial reporting is most important to various users of
information. The Information of financial reporting consists of four dimensions as understandability,
relevance, comparability and reliability. The quality of information that reflects real economic will
bring reliability of users’ information. Accordingly, the financial reporting quality increases a reliable
and leads to gain reputation of corporate. The reputation of firm is the way to firm credibility.
However more surprisingly, the result indicating financial reporting quality is not significant
(41=.011, p> 0.10). Hence, hypothesis 5 is not supported. Also, the result in this paper
focuses on financial reporting quality within only accounting standard can increase firm credibility.
Firm might use other important factors to increase firm credibility as firm profitability, market
growth and firm growth.
TABLE 3
RESULTS OF OLS REGRESSION ANALYSIS
Dependent Variables
Independent
FRQ FRQ CGS CGS EAE EAE FC FC FC
Variables
1 2 3 4 5 6 7 8 9
ACE .575*** .586*** .620*** .540***
(.068) (.068) (.066) (.070)
FRPR -.037 .011 -.074 .058
(.095) (.096) (.092) (.099)
IAE .027 .007 .084 .118
(.114) (.114) (.109) (.118)
BRME .022 .111 .003 -.115
(.119) (.120) (.115) (.124)
RPA .402*** .398*** .378*** .413***
(.130) (.131) (.125) (.135)
IAP .229* .137 .300** .138
(.124) (.125) (.119) (.129)
FRQ .011
(.110)
CGS .482***
(.111)
EAE .343***
(.098)
Firm Size .345** .356** .249 .282* .169 .163 .239 .202 .053
(.153) (.155) (.153) (.156) (.149) (.149) (.158) (.161) (.114)
Leverage -.213 -.169 -.090 -.038 -.158 -.117 .142 .140 .253
(.226) (.224) (.225) (.225) (.219) (.216) (.232) (.233) (.165)
Adjusted R2 .332 .355 .336 .350 .371 .404 .293 .306 .644
Note: The value of the beta coefficients are in the first row. Below are the values of standard errors in
parenthesis.
* p < 0.10, ** p < 0.05, *** p < 0.01
Table 4 presents the examination of three antecedents support audit committee effectiveness.
That is all antecedents as corporate board accountability, audit committee competency and
regulator encouragement. Model 10 suggests the corporate board accountability is significant
positively related audit committee effectiveness (46=.212, p< 0.05). Corporate governance has
an impact on financial reporting quality (Cohen et al., 2004). The corporate governance is firms
with board and audit committee are oversight all activities of firm to ensure the integrity of the
financial reporting process (POB, 1993). Board accountability chooses audit committee

competency to oversight their function lead to effectiveness. Firm with board intents to monitor
operation of firm tend to increase effectiveness of audit committee. Hence, hypothesis 8 is
supported.
Furthermore, the audit committee competency is significant positively related audit committee
effectiveness (47=.460, p< 0.01). Firms with qualifies of audit committee improve effective
oversight operation of firm (DeZoort et al., 2002). The recent regulation of audit committee
function is more likely to increase abilities of audit committee (SOA, 2002; BRC, 1999; SEC,
1999a; SEC 1999b). Including which their independent, composition, expertise, disclosure of
activities reporting, discussion of financial reporting quality, and materiality assessment, firms
with audit committee are independent and honest members with financial literacy, authority to
act, and timely access to significant information including diligence that tends to achieve audit
committee effectiveness. McMullen and Raghunandan (1996) needed for audit committee to be
independent, informed and vigilant in order to be effective. Consistently, Fabrizius (1998)
suggests five elements of audit committee effectiveness have independent, training and
resources, regular meetings review of the assessment process, and unrestricted access to
auditors. Moreover, Krishnamoorthy et al., (2002a) found that the expertise and willingness of
audit committee to confront management are strong influences on audit committee
effectiveness. Therefore, in sum, these findings suggest that firm with higher audit committee
competency tend to gain greater audit committee effectiveness. Hence, hypothesis 9 is
strongly supported. In addition, the regulator encouragement is significant positively related
audit committee effectiveness (48=.183, p< 0.05). The result indicates that regulator
encouragement supports function of audit committee monitoring. It implies that firms with higher
level regulatory gain effectiveness of audit committee. Therefore, hypothesis 10 is supported.
Equation 11 tested the professional management orientation as q moderator, the interaction
term of three antecedents and professional management orientation on audit committee
effectiveness. All results are not significant (55= -.026, 56=-.057, 57=.010, respectively p>
0.10). Hence, hypotheses 11-13 are not supported. The result suggests that professional
management orientation is not the moderator on the relationship between corporate board
accountability, audit committee competency, regulator encouragement on audit committee
effectiveness. This paper suggests another factor interaction on ACE as environmental
competitive.
TABLE 4
RESULTS OF OLS REGRESSION ANALYSIS
Dependent Variables
Audit Committee Audit Committee
Independent Variables
Effectiveness (ACE) Effectiveness (ACE)
10 11
Corporate Board Accountability (CBA) .212** .247**
(.088) (.108)
Audit Committee Competency (ACC) .460*** .447***
(.083) (.107)
Regulator Encouragement (RE) .183** .199**
(.072) (.079)
Professional Management Orientation (PMO) -.036
(.119)
CBA x PMO .026
(.085)
ACC x PMO -.057
(.075)
RE x PMO .010
(.066)
Firm Size -.112 -.103
(.122) (.125)
Leverage .229 .221
(.181) (.183)

Adjusted R2 .575 .565
Note: The value of the beta coefficients are in the first row. Below are the values of standard errors in
parenthesis.
* p < 0.10, ** p < 0.05, *** p < 0.01
6. IMPLICATION OF THE RESEARCH
6.1 Theoretical Implication

The objective of this paper is to investigate effectiveness of audit committee that has a
significant positive influence on four consequents as firm credibility, financial reporting quality,
corporate governance success and external audit efficiency. This study offers important
theoretical contribution that role of audit committee responsibility within corporate governance of
Thai listed firms. Then, this study focuses on Thai context. It has generalizability for explanation
of the role of audit committee effectiveness on its consequents and antecedents in other
emerging countries as south Asian. This study purposes five dimensions of audit committee
effectiveness on consequents while each of dimensions are separately affect the consequences
one by one. But when five dimensions are put in the model, they do not influence consequents.
Hence, these five dimensions should be integrated as audit committee effectiveness. That has
more powerful influence on firm credibility, financial reporting quality, corporate governance
success and external audit efficiency. This study provides important theoretical contributions
expending on prior studies by using resource base view theory. That describes the role of audit
committee effectiveness on firm credibility, financial reporting quality, corporate governance
success and external audit efficiency focuses on Thai listed firm context after Asia crisis.
6.2 Practical Implication

This study explains key of qualifications of audit committee. They can increase firm credibility on
its acting with the highest effectiveness oversight firm operation. Hence, the ability of audit
committee helps to create financial reporting quality, corporate governance success, external
audit efficiency and firm credibility. Board of director should provide appropriate audit committee
members. Audit committee’s capability can increase its effectiveness to support oversight
function. Then, audit committee has more ability to gain greater effectiveness. Moreover, all
audit committee members should improve effectiveness of monitoring and review function.
They improve continuing their ability to serve monitor. Besides, this study helps a firm’s
manager supports audit committee function as regarding financial statement process, external
and internal audit leads to improve firm’s financial reporting quality, governance success and
firm credibility. Furthermore to sustain firm credibility manager should provide support other
factor to corporate governance success and efficiency as intent internal control system and
teamwork, support independent of audit committee and internal auditor.
6.3 Institution Implication

For the implication for regulator as the Stock Exchange of Thailand (SET), the Securities and
Exchange Commission of Thailand (THAI-SEC), this study helps institution to determine and
explain the methods to limitation and support a role of audit committee responsibility. Thus,
regulator should be altered to improve the rule or standard in order to improve effectiveness of
audit committee activity. Moreover, the ethics of audit committee is so important included intent
review or audit training for audit committee. Moreover, the training academy should be an
intensive course to improve effectiveness of audit committee. Furthermore, regulator should be
establishing the qualifications of audit committee as independence and skills in order to serve
public firms to improve governance in the long term.
7. LIMITATIONS AND FUTURE RESEARCH DIRECTIONS
This study focuses on the effect of audit committee effectiveness on financial reporting quality,
corporate governance success, external audit efficiency and firm credibility. Moreover, this
study consists of five dimensions of audit committee effectiveness that separately affect four
consequents. Nevertheless, the five dimensions of audit committee effectiveness have no
influence on four consequences. Therefore, these five dimensions of audit committee

effectiveness should be integrated. Also the integrated of audit committee effectiveness have
more powerful influence on financial reporting quality, corporate governance success, external
audit efficiency and firm credibility. However, the future research should use other techniques
as structural equation model to test each of five dimensions.
This study has several limitations. Firstly, it uses only questionnaire to collect data by mail
survey. Hence, the empirical validity may be biased. The future research should be mixed
method in collecting data. Secondly, this study uses only listed firms to sample in SET. Hence, it
focuses on specific companies in stock exchange of Thai context. The future research should
study effectiveness of audit committee in other sectors as export companies, BOI companies,
ISO companies. Moreover, for generalizability to reconceptual of audit committee effectiveness,
it would examine other countries in South Asia.
8. CONCLUSION
Audit committees are important for corporate governance in capital market. They have an
important role for monitoring in the improvement of a transparency and accountability listed
firms. After Asia crisis in the year 2000, audit committees have been established widely in South
Asian including Thailand. They can improve governance of listed firm for survival and increase
firm credibility. The corporate governance is the most essential for stakeholders. This study
attempts to purpose the effectiveness of audit committee in the role of oversight function that ha
a direct positively influence on financial reporting quality, corporate governance success,
external audit efficiency and firm credibility. Audit committee effectiveness consists of five
dimensions. Moreover, all three antecedents influenced on audit committee effectiveness are
included. Additionally, the professional management orientation is a moderator effect
relationship between all antecedents and audit committee effectiveness.
The overall results show the significant positive relationship between audit committee
effectiveness and consequents. Including, all three antecedents are board corporate
accountability, audit committee competency and regulator encouragement that have positive
direct effect on audit committee effectiveness. Surprisingly, the moderating effects of
professional management orientation do not occur to show the relationships between all three
antecedents and audit committee effectiveness. This study suggests that the future research
should use other techniques, such as structural equation model to test each of five dimensions
on how direct and indirect affects on consequences. Furthermore, the future research should try
theoretical concept extent with other counties especially those in South of Asia such as
Singapore, Malaysia, and the Philippines.
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ACKNOWLEDGMENT:
I would like to thank Office of the Higher Education Commission, Thailand for supporting by
grant fund under the program Strategic Scholarships for Frontier Research Network for the
Ph.D. Program Thai Doctoral degree for this research.
AUTHOR PROFILES:
Phuangthip Akarak earned her M.B.A. at Kasetsart University, Thailand in 1999. Currently she
is a Ph.D. (Candidate) in Accounting at Faculty of Accountancy and Management,
Mahasarakham University, Thailand.
Dr. Phapruke Ussahawanitchakit earned his Ph.D. at Washington State University in 2002.
Currently he is an associate professor of accounting and a dean of the Faculty of
Accountancy and Management, Mahasarakham University, Thailand.

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AUDIT COMMITTEE EFFECTIVENESS AND FIRM CREDIBILITY:

AN EMPIRICAL INVESTIGATION OF THAI-LISTED FIRMS

Phuangthip Akarak, Mahasarakham University, Thailand

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 38

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 39

3. LITERATURE REVIEW AND HYPOTHESIS DEVELOPMENT

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 40

3.1 Audit Committee Effectiveness

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 41

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 42

Regulation practice achievement. Regulation practices achievement is defined as the success to

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 43

3.2 Audit Committee Effectiveness and Consequences

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 44

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 45

3.3 Mediating Effects of the Relationship

Corporate governance success. The corporate governance has an extensive to many

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 46

External audit efficiency.

3.4 Antecedents of Audit Committee Effectiveness

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 47

3.5 The Moderating Effects of the Relationships

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 48

4.1 Population and Sample

4.2 Data Collection

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 49

4.3 Test of Non-Response Bias

4.4 Variable Measurements

Mediating variables. There are three mediators to be measured as discussed below:

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 50

Moderating variable. Professional management orientation is moderating variable. It refers to the

4.5 Reliability and Validity

Variables Factor Loadings Cronbach’s Alpha

4.6 Statistical Techniques

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 51

5. RESULTS AND DISCUSSION

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 52

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 53

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 54

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 55

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 56

6. IMPLICATION OF THE RESEARCH

6.1 Theoretical Implication

6.2 Practical Implication

6.3 Institution Implication

7. LIMITATIONS AND FUTURE RESEARCH DIRECTIONS

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 57

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 58

Ashbaugh, H. and Warfield, T. D. 2003. Audits as a corporate governance mechanism:

Barney, J. 1991. Firm resources and sustained competitive advantage. Journal of

Burns, G.M. 1978. Leadership. New York; Harper and Row.

Churchill, G.A.J. 1979. “A Paradigm for Developing Better Measures of Marketing

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 59

DeZoort, F.T. 1997. An investigation of audit committees’ oversight responsibilities. Abacus,

INTERNATIONAL JOURNAL OF BUSINESS RESEARCH, Volume 10, Number 2, 2010 60

International Federation of Accountants Committee (IFAC). 1999. Financial and Management

Kalbers, L.P. and T. J. Fogarty. 1993. Audit committee effectiveness: An empirical

Klein, A. 2002b. Audit committees, board of director characteristics and earning