The impact of audit committee financial expertise on management discussion and analysis (MD&A) tone

This study examines whether financial expertise of audit committees affects the quality of textual information conveyed through the management discussion and analysis (MD&A) section of corporate annual reports. Our empirical results reveal that audit committee financial expertise, particularly that which is directly connected to accounting, curtails managerial opportunism in the form of upward management of MD&A tone. In addition, we find that the effect of financial expertise is more pronounced when the audit committee is more powerful or when audit committee members face higher litigation risks. Overall, this study highlights the importance of audit committee financial expertise in improving the quality of qualitative disclosures.