Correspondence: Andrew J. Felo, School of Graduate Professional Studies, The Pennsylvania State University – Great Valley, 30 East Swedesford Road, Malvern, Pennsylvania 19355-1443, USA. E-mail: AJF14@psu.edu

¹is an Associate Professor of Accounting at The Pennsylvania State University Great Valley School of Graduate Professional Studies. His area of research include a corporate governance, accounting ethics, and disclosure transparency. His work has been published in Accountancy and the Public Interest, Journal of Forensic Accounting, Journal of Business Ethics, and Strategic Finance.

²is an Assistant Professor of Accounting at Queens College - City University of New York (CUNY) and is also a managing member of the accounting firm of Solieri & Solieri, CPAs, PLLC. Solieri's research interests include corporate and IT governance, the PCAOB, SEC and other regulatory issues, and restatements.

Received 9 October 2008; Revised 9 October 2008; Published online 11 December 2008.

Abstract

There is little extant empirical research that classifies audit committee members based on expertise and independence simultaneously. Additionally, there is little empirical research where different types of gray audit committee members are considered separately. We find disclosure quality (as perceived by financial analysts) is positively related to the percentage of audit committee members who are affiliated with companies providing services to the firm and who are financial experts and negatively related to the percentage of audit committee members who are related to firm executives and who are financial experts. We also find that adding independent audit committee financial experts predates improvements in disclosure quality. As regulators around the world consider implementing audit committee requirements mandated in the United States, our results call into question disqualifying all gray directors from audit committees.