The accuracy and credibility of financial reports issued by listed firms are crucial for an efficient and viable stock market. Unfortunately, accounting fraud and other financial market misconduct are prevalent in the global market, and have seriously damaged interests of shareholders around the world (Cumming et al. 2015; Greve et al. 2010). Dyck et al. (2010) for example estimate that up to 14% of U.S. firms may engage in fraudulent activities. This ratio is even higher in developing economies with less stringent regulatory environment (e.g., Gabbioneta et al. 2013; Firth et al. 2011). The 2016 Global Fraud Study reports that a typical organization loses approximately 5% of its annual revenues to financial misconduct each year, which amounts to hundreds of billions in lost value globally.1 Apart from causing significant investment loss, fraudulent financial reporting also constitutes a direct breach of stakeholders’ trust, thus represents an ethical failure of corporate managers to perform their fiduciary duties to investors (Kaplan 2001; Staubus 2005). To prevent financial misconduct and to improve investor confidence, governments around the world have implemented a series of reforms to strengthen internal and external corporate governance mechanisms. Many of these regulatory changes have focused on the composition of an audit committee, a board sub-committee in charge of overseeing a firm’s financial reporting process, internal control structure, internal audit functions, and external audit services. In the U.S., both the New York Stock Exchange (NYSE) and the National Association of Securities Dealers Automated Quotations (NASDAQ) started requiring publicly traded firms to maintain an audit committee with at least three outside directors in 1999. The Sarbanes–Oxley Act (SOX) of 2002 further specifies that an audit committee in a listed company should consist entirely of independent directors. In addition, each member of the audit committee must be financially literature with at least one being a financial expert. These requirements were subsequently incorporated by both stock exchanges in their listing requirements (Linck et al. 2009). The underlying rationale of these reforms could be summarized in a statement of Arthur Levitt (1999), the former chairman of Securities and Exchange Commission (SEC) in the U.S., that ‘‘Qualified, committed, independent, and tough-minded audit committees represent the most reliable guardians of the public interest.’’ However, as Agrawal and Chadha (2005) point out, ‘‘there is no systematic empirical evidence on the effectiveness of these governance provisions in avoiding serious accounting problems at companies’’. Carcello et al. (2011) likewise suggest that SOX provisions on audit committee independency are not equally effective in all listed firms and are often compromised by organizational contingencies particularly the CEO’s involvement in board selection processes.