Despite regulations mandating audit committee economic independence, the CEO may still influence audit committee members’ objectivity through social ties (e.g., belonging to the same country club) or professional ties (e.g., having served on boards together). Additionally, prior archival research finds that audit committee industry expertise enhances financial reporting quality. Nonetheless, information about ties and industry expertise are not currently publicly disclosed in regulatory filings. In an experiment with 342 reasonably informed investors, we find, as hypothesized, that ties (professional or social) and industry expertise affect assessments of audit committee independence and competence. Using planned contrast tests, we also find that investors assess audit committees with no ties and industry expertise (social ties and no industry expertise) as the most (least) effective and also result in the highest (lowest) likelihood of investing. Further, the potential negative effects of social ties on investor’s judgments are muted when there is industry expertise present, while the presence of no ties appears to decrease negative effects on investor judgments due to a lack of industry expertise. This study provides important baseline evidence supporting the relevance of audit committee ties and industry expertise information to investors and thus suggests the value of increased disclosures to investors of such information to enhance their ability to make more informed investment decisions.

This paper sheds light over the operations and internal structure of business angel groups (BAGs), a leading actor inside the informal venture capital industry, due to its capability to build cognitive resources and shared competencies that are eventually provided to funded ventures alongside equity capital. We develop a framework based on the role of business angels' decision-making style, human capital and motivation as major determinants of their active involvement in the many different activities performed by angel groups, either investment related activities or group management activities. Our empirical analysis relies on a novel survey-based dataset containing qualitative and quantitative information provided by the members of two large and rather homogeneous business angel groups located in France and in Italy. Results show that business angels with a control-oriented decision-making style tend to be more actively involved in key angel group activities. Human capital built through investment experience, retirement status, as well as initial motivation to join an angel group are also significant drivers of angel involvement in several key BAG activities.