The effect of Audit Committees on Free Cash Flow: An Applied Study on A Sample of Companies Listed on The Iraqi Stock Market

Abstract

The research aims to know the impact of audit committees on free cash flow. The research sample included (15) companies listed on the Iraqi Stock Exchange for the banking sector during the period extending from (2012 - 2021). The research was based on the use of a model for measuring audit committees (independence, size, number Meetings, financial experience, ownership), and that audit committees are a dummy variable, giving the value (1) if the arithmetic mean exceeds three of the five mentioned measures, this indicates the strength of the committee, and giving (0) otherwise indicates the weakness of the committee, while it was Measuring free cash flow through the measurement model of (Kieso et al., 2020), and this research relied on applied practical testing of the relationships deduced in the theoretical side of the current study, The actual data collected from the financial statements of the Iraqi banks, the research sample, was relied upon to determine the extent of the influence of audit committees on free cash flow in the private banks, the research sample. The statistical analysis program, which is SPSS, was used. Upon examination, the research concluded that there is A positive and significant effect of audit committees on the level of free cash flow, meaning that the stronger the audit committees, the greater the free cash flow. One of the most important recommendations of the research is that Iraqi companies should pay great attention to more effective audit committee mechanisms, given their role in strengthening the supervisory and oversight role over bank departments, which in turn is reflected in the financial performance of all banks. There is also the need for companies listed on the Iraq Stock Exchange to provide adequate information about free cash flow and voluntary disclosure of it, as this disclosure provides important information for all parties that have interests and goals related to the company, as well as educating investors about the importance of the information it provides about free cash flow and the role of this information. In giving investors an idea of the profits and gains they can obtain when investing in these companies, as well as educating creditors about the company’s ability to meet its obligations. It is necessary to disclose in the financial statements of banks at the end of the fiscal year sufficient information related to the characteristics of the audit committees in terms of the number of members, the number of independent members in the committee, as well as the financial or accounting experience of the committee members, the number of committee meetings during the year, and the ownership of the committee members.

Keywords

• Audit Committees, Free Cash Flow, The banking sector.