The determinants and consequences of finance committee use

Abstract

Finance committees are the most commonly created voluntary committees of boards. Finance committees oversee and advise management on financial issues. We study why firms create finance committees and whether firms benefit from using a finance committee. We predict that firms that need finance expertise would benefit the most from having a finance committee, and thus, are more likely to form such a committee. We find that firms are more likely to have a finance committee when they have derivatives, defined benefit pension plans, high leverage and credit ratings, and active dividend payout. We examine the impact of finance committees on investment performance using two proxies, investment efficiency and capital expenditure (capex) guidance quality. We find that firms with a temporary finance committee invest more efficiently and provide capex guidance more frequently. We find no association between finance committee use and capex forecast issuance, accuracy and precision.