Audit Committee Characteristics and Firm Performance: Evidence from Indian Pharmaceutical Firms

Abstract

Corporate governance mechanisms, particularly audit committees, constitute essential internal controls that mitigate agency conflicts and enhance financial transparency in publicly listed firms, especially in highly regulated sectors such as India’s pharmaceutical industry. This study examines the impact of audit committee characteristics on firm financial performance in the Indian pharmaceutical sector using a balanced panel dataset of the top ten Nifty Pharma firms by market capitalisation from 2015–16 to 2024–25. Drawing on SEBI LODR–compliant parameters, an Audit Committee Characteristics Index (ACC) was constructed using 14 binary-scored governance attributes covering committee independence, expertise, diligence, and size. A panel regression analysis was conducted, with the Hausman test indicating the suitability of the random effects model for ROA and ROE, and the fixed effects model for Tobin’s Q. The results reveal that stronger audit committee characteristics significantly enhance accounting-based performance (ROA and ROE) and market-based valuation (Tobin’s Q), even after controlling for leverage, profitability margin, and firm size. Among the ACC components, audit committee independence, financial expertise, and meeting frequency are the most influential drivers of firm performance. Overall, the findings provide robust post-LODR evidence from an R&D-intensive emerging market sector, offering valuable insights for regulators in strengthening governance norms, investors in evaluating firm quality, and academics in advancing the corporate governance–performance literature.