The integration between managerial ability and the effectiveness of audit committees and its impact on the stock price crash risks

Thesis submitted to the Board of the Faculty of Management and Economics – University of Karbala, which is part of the requirements for the degree of Doctor of Philosophy in Accounting

Of the student

Ali Tahseen Kadhem Alkhafaji

Supervised by

The Professor

Dr. Karrar Saleem Abdulzahra Hameedi

The research aims to frame the intellectual integration between managerial ability and the effectiveness of audit committees by stating the aspects of this integration and its impact on various fields, and stating the philosophical and applied impact of this integration on the risks of crash stock price, by applying it to 70 observations (bank / year) of Iraqi banks listed on the Iraq Stock Exchange for the period from 2016-2022.

The researcher used quantitative measurement of the research variables, as managerial ability was measured by using the model (Demerjian et al., 2012), and the effectiveness of audit committees was measured through their indicators (independence of the audit committee, size of the audit committee, experience of audit committee members, number of audit committee meetings, percentage of ownership of audit committee members), and the stock price crash risks were measured by using the monthly volatility scale of stock prices from bottom to top, and the SPSS statistical package program was used to determine the validity of the data for statistical analysis through normal distribution tests, binary correlation matrix between variables, correlation analysis, linear regression, and one-way variance test.

The research reached several conclusions, the most important of which are:

1. The economic units whose executive director has high managerial ability also have an effective audit committee, and vice versa, the economic units whose audit committee is highly effective choose an executive director with high efficiency and managerial ability.
2. There is an inverse effect between managerial ability and the stock price crash risks, which indicates that the manager with high managerial ability seeks through various methods to prevent or reduce the stock price crash risks.
3. There is an inverse effect between the effectiveness of the audit committee and the stock price crash risks, which indicates that the presence of a highly effective audit committee through its indicators increases its performance in monitoring the activity of the manager and the economic unit, and thus prevents stock prices crash.
4. The integration between managerial ability and the audit committee has a significant impact on reducing the stock price crash risks, as the audit committee supports the efforts of managerial ability in reducing the stock price crash risks.

In light of the previous conclusions, the research recommends several recommendations, the most important of which are:

1. It is necessary for the audit committee to contribute to selecting the manager of the economic unit who has high managerial ability, and the manager with high managerial ability also intervenes in forming the audit committee and selecting the appropriate members for the committee’s tasks.
2. The manager of the economic unit with high managerial ability should use his skills and abilities to evaluate the performance of the economic unit, which helps reduce the stock price crash risks.
3. When selecting members of the audit committee, it is necessary to taking into account the indicators of the members, which increases its effectiveness and thus reduces the stock price crash risks.
4. The paragraphs of integration between the managerial ability and the audit committee should be evaluated in terms of the executive role of managerial ability and the supervisory role of the audit committee, which increases the value of the economic unit and reduces the stock price crash risks.

The integration between managerial ability and the effectiveness of audit committees and its impact on the stock price crash risks

Thesis submitted to the Board of the Faculty of Management and Economics – University of Karbala, which is part of the requirements for the degree of Doctor of Philosophy in Accounting

Of the student

Ali Tahseen Kadhem Alkhafaji

Supervised by

The Professor

Dr. Karrar Saleem Abdulzahra Hameedi

The research aims to frame the intellectual integration between managerial ability and the effectiveness of audit committees by stating the aspects of this integration and its impact on various fields, and stating the philosophical and applied impact of this integration on the risks of crash stock price, by applying it to 70 observations (bank / year) of Iraqi banks listed on the Iraq Stock Exchange for the period from 2016-2022.

The researcher used quantitative measurement of the research variables, as managerial ability was measured by using the model (Demerjian et al., 2012), and the effectiveness of audit committees was measured through their indicators (independence of the audit committee, size of the audit committee, experience of audit committee members, number of audit committee meetings, percentage of ownership of audit committee members), and the stock price crash risks were measured by using the monthly volatility scale of stock prices from bottom to top, and the SPSS statistical package program was used to determine the validity of the data for statistical analysis through normal distribution tests, binary correlation matrix between variables, correlation analysis, linear regression, and one-way variance test.

The research reached several conclusions, the most important of which are:

1. The economic units whose executive director has high managerial ability also have an effective audit committee, and vice versa, the economic units whose audit committee is highly effective choose an executive director with high efficiency and managerial ability.
2. There is an inverse effect between managerial ability and the stock price crash risks, which indicates that the manager with high managerial ability seeks through various methods to prevent or reduce the stock price crash risks.
3. There is an inverse effect between the effectiveness of the audit committee and the stock price crash risks, which indicates that the presence of a highly effective audit committee through its indicators increases its performance in monitoring the activity of the manager and the economic unit, and thus prevents stock prices crash.
4. The integration between managerial ability and the audit committee has a significant impact on reducing the stock price crash risks, as the audit committee supports the efforts of managerial ability in reducing the stock price crash risks.

In light of the previous conclusions, the research recommends several recommendations, the most important of which are:

1. It is necessary for the audit committee to contribute to selecting the manager of the economic unit who has high managerial ability, and the manager with high managerial ability also intervenes in forming the audit committee and selecting the appropriate members for the committee’s tasks.
2. The manager of the economic unit with high managerial ability should use his skills and abilities to evaluate the performance of the economic unit, which helps reduce the stock price crash risks.
3. When selecting members of the audit committee, it is necessary to taking into account the indicators of the members, which increases its effectiveness and thus reduces the stock price crash risks.
4. The paragraphs of integration between the managerial ability and the audit committee should be evaluated in terms of the executive role of managerial ability and the supervisory role of the audit committee, which increases the value of the economic unit and reduces the stock price crash risks.