When Replacing an Audit Committee Member, Does Financial Expertise Matter to Investors? 1

This research addresses whether audit committee financial expertise matters when making investing decisions. While prior studies have examined the effects of audit committee financial expertise on the stock market, this study makes a contribution by investigating how audit committee financial expertise affects individual investors' decisions. The study uses an experimental approach involving a 2x2 between subjects design. Results indicate that investing decisions are affected by whether a company's audit committee has a member with financial expertise. Additionally, some evidence indicated that replacing a nonfinancial audit committee member with a financial expert appears to send a positive signal to investors. Conversely, replacing a financial expert with a nonfinancial audit committee member sends a negative signal. Finally, there is no evidence that investors view the loss of a financial expert on the audit committee as different from not having had a financial expert to begin with.