LAUSR

Abstract We analyze the impact of audit committee effectiveness on bank stability. By focusing on audit committee structure, the study reveals that smaller audit committees with more independent members can enhance bank stability. This indicates that audit committee effectiveness is positively related to bank stability. We further find that audit committee effectiveness principally drives bank stability higher through the reallocation effect for profits and incentives to hold higher capital ratios. Moreover, the relationship between bank stability and audit committee effectiveness depends critically on the health of each bank and the institutional quality of each country.