Audit Committee Effectiveness and Corporate Sustainable Growth: The Case of Egypt

The purpose of this study is to examine the association between audit committee (AC hereafter) effectiveness, measured by its characteristics; AC size, AC independence and AC meetings and corporate sustainable growth rate (SGR hereafter) in the Egyptian setting. It also explores how results differ between service and non-service firms and whether the main results persist when only profitable firms are being examined.
 To obtain relevant information about AC characteristics and SGR, the study relied on the board of directors’ and annual reports of non-financial firms listed on the Egyptian Stock Exchange (EGX) during the period spanning from 2015 to 2019. Multiple regression models were developed to test the research hypotheses and conduct sensitivity and additional analyses.
After controlling for audit quality, ownership concentration, firm size, firm age and firm risk, regression results didn’t Show significant positive association between AC size and SGR. However, AC independence and AC meetings are positively and significantly associated with SGR. Ownership concentration is positively and significantly associated with SGR, while audit quality is negatively and significantly associated with SGR. Two sensitivity checks and additional analyses were conducted to provide further evidence. Results are robust to an alternative measure of SGR and AC independence. The role that ACs play in SGR differ between service and non-service firms. Results remain unchanged when only profitable firms are examined.
The results demonstrate that ACs in Egypt play an important monitoring and governance role in the sustainable growth of non-financial firms listed on EGX. The Egyptian Corporate Governance Code related to ACs fulfilled its goals. The study results are of great value to policy makers, regulators, accounting professionals, researchers and other stakeholders.