Does an Effective Audit Committee Impact Bank Performance? An Evidence From the Indian Banking Sector

Purpose: A well-functioning audit committee significantly improves transparency and accountability in financial matters. The current study aims to investigate how an effective audit committee impacts bank performance. Design/methodology/approach: This research examines a sample of 29 Indian listed banks, including 12 public sector banks and 17 private sector banks, that are listed on the National Stock Exchange and the Bombay Stock Exchange from 2014-15 to 2023-24. The study employs an unweighted audit committee index comprising 11 items to assess the efficiency of the audit committee. Bank performance is assessed using Return on Assets (ROA) and Net Interest Margin (NIM). The present study used the System Generalized Method of Moments technique for the analysis. Findings: The study finds a positive impact of audit committee index score on bank performance. The results show that the audit committee score has a positive impact on the ROA and NIM. These findings support previous publications that suggest the individual features of audit committees (AC) enhance financial performance. Research limitations/implications: The study evaluates bank performance solely through ROA and NIM measures. Further, the research period is constrained to the years 2014-15 to 2023-24. Practical implications: The findings of the study provide empirical evidence on the differing impacts of AC on bank performance, which is essential for policymakers, bank managers, and other stakeholders in their decision-making and regulation of AC. Social implications: The significance of an effective audit committee lies in its role in promoting transparency and accountability in financial matters, particularly within the banking sector, which is crucial for the economy. Thus, this topic serves the interests of society at large. Originality/value: The study asserts its uniqueness by employing an unweighted audit committee index to examine the combined effect of audit committee characteristics on the performance of banks. Further, this study is one of the initial literature on the connection between effective audit committee and bank performance in context of recent corporate governance reforms in India. The findings indicate that an effective audit committee has a substantial and beneficial impact on the performance of banks. Additionally, these findings continue to hold significance in the context with recent corporate governance reforms, providing valuable insights for policy deliberation.