Audit Committee Characteristics and Inter‐Corporate Loans: Indian Evidence

ABSTRACT Inter‐corporate loans (ICLs) are significant issues in many developing countries, such as India, given the opportunities for wealth extraction from non‐controlling shareholders. ICLs have attracted significant attention from legislators and regulators in India as part of efforts to enhance corporate governance and financial reporting quality. Recent changes in law and regulation in India require greater scrutiny of ICLs by audit committees. Using an unbalanced panel of 6074 firm‐year observations from 2261 publicly listed Indian firms, we find that audit committee independence (busyness) is negatively (positively) associated with ICLs. The results have policy implications because Indian law and Indian stock exchange listing rules (a) do not require that audit committees of publicly listed companies be fully independent and (b) have very high thresholds for audit committee director busyness.