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Is There a Relationship between Firm Performance, Corporate Governance, and a Firms Decision to Form a Technology Committee?
Ronald F. Premuroso* and Somnath Bhattacharya
Some S&P 500 rms have recently formed technology committees at the board-level. This study investigates the corporate governance and rm nancial performance implications of the voluntary formation of technology committees by members of the S&P 500. Using nancial performance and structure-related variables, the results of the study suggest that rms corporate governance ratings are signicantly and positively related to their decisions to voluntarily form technology committees. Specically, rm performance ratios such as return on assets, return on equity, and net prot margin appear to be associated with rms decisions to form board-level technology committees. These ndings have post Sarbanes-Oxley corporate governance and performance implications and should be relevant for stakeholders such as the SEC, various stock exchanges, and the rms themselves. Keywords: Board committees, board composition, board of directors, board quality measurement, board structure, corporate governance, rm nancial performance, information technology, intellectual property, research and development, science and technology

1. Introduction

*Address for correspondence: Florida Atlantic University, 777 Glades Road, Boca Raton, FL 33431-0991, USA. Tel: 1-561212-0766. E-mail: premuros@ fau.edu

he multitude of high-prole US corporate scandals over the past decade have increased both public and shareholder scrutiny of corporations. The regulatory reforms mandated by the Sarbanes-Oxley Act of 2002 (SOX hereafter) and adopted by the Securities and Exchange Commission (SEC hereafter) represent the most important securities legislation since the original federal securities laws of the 1930s (then SEC Chairman William H. Donaldson, September 17, 2003). One of SOXs objectives is to enhance corporate governance by promoting board independence and imposing new obligations and responsibilities on the audit committee (Linck et al., 2005, 30). The provisions of Sections 401 (Disclosures in periodic reports), 404 (External auditors attestation of managements report regarding internal controls) and 409 (Real time issuer disclosures) of SOX have also increased

the pressure on boards of directors of US-traded rms to improve overall corporate governance. While all US rms have formed audit and compensation committees to comply with SOX and stock exchange regulations, some US rms have also voluntarily formed board-level committees termed technology committees. According to the Spencer Stuart Board Index (2005), about 5 per cent of the S&P 500 boards now have technology committees, up from none in 2000.1 Technology committees are being formed to assist board members in the areas of information technology, science and technology-driven rm issues. If a rm has signicant changes relating to or affecting intellectual property or technology, such changes may have a material impact on a rms net worth (which would require a SOX Section 409 disclosure) (DeCarlo, 2005). Also, Section 404 of SOX requires rms to detail the adequacy of their internal controls over
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technology systems (Murti, 2005). Directors who are bankers or nancial experts arent comfortable with complicated scientic and technology issues . . . the technology committee is a relative newcomer to the corporate governance scene (Feldman and Potamianos, 2005, 14). If a companys intellectual property assets are material, the rm is required to provide detailed disclosure and discussion in the business section of the annual report regarding such intellectual property assets such as patents, copyrights, trademarks, and trade secrets; the existence of material risks or litigation related to this intellectual property also requires disclosure and the failure to provide adequate disclosure of such information may be a violation of SOX (DeCarlo, 2005). In addition, Statement of Financial Accounting Standards No. 142 requires rms to regularly evaluate all intangible assets to determine if impairment in their value has occurred. Since such assets often involve technology and future value of technological innovations technology committees and their deliberations and resulting actions may have corporate governance and rm performance implications.2 In this paper we attempt to determine the corporate governance and rm performance implications of rms forming technology committees. These committees essentially represent a new type of voluntary board committee, and as the formation of other voluntary board committees continues to grow, the results obtained here may well also apply to other voluntary board committees appointed by rms in the post-SOX era. Our results suggest that corporate governance is signicantly and positively related to rms decisions to voluntarily form technology committees. Additionally, rm performance ratios such as returns on assets, returns on equity, and net prot margins are also associated with rms decisions to form technology committees. The rest of this paper is organised as follows: Section 2 contains the literature review. The research hypotheses and variable measurements are developed in Section 3. Section 4 describes the research methodology, including the statistical analyses performed on the data. Section 5 presents the results of the various statistical analyses. Section 6 presents the conclusions, limitations of the study, and related areas for future research.

committees; describes how the quest for rstmover advantages may motivate the voluntary formation of technology committees; and explores the potential relationship of board composition to corporate governance and rm performance.

2.1. The evolution of corporate governance guidelines

Corporate governance guidelines, including the development by rms of codes of best governance practices, began to develop strongly in the US in the early 1990s (Gregory, 1999). These guidelines were developed in response to the perception that boards of directors had been ineffective in their oversight of management. This lack of adequate oversight was seen as contributing to rm under-performance (Jensen and Meckling, 1979; Rubach and Picou, 2005). Firms began to issue numerous guidelines related to corporate governance themselves in order to resolve potential conicts between shareholders and management (Core et al., 1999). Additionally, corporate governance and best board practices have also been issued or recommended by many organisations, including the American Bar Association (Gregory, 1999). Late in 2003, the SEC approved several governance-related reforms suggested by the three major US stock exchanges.3 These reforms required corporate boards to develop independent processes for nominating directors that would ultimately lead to a majority of outside independent directors. The New York Stock Exchange, for instance, requires rms to have independent nominating committees, to establish compensation committees consisting of independent directors, and to disclose corporate governance guidelines. The NASDAQ and AMEX similarly require that nominations be made and compensation be set by at least a majority of independent board directors. Board-level technology committees may therefore be part of a natural evolution of the corporate governance process for publicly-listed rms in the post-SOX era.

2.2. Incentives for the development of board sub-committees

As recently as 2004, Spira and Bender (2004) stated that the establishment of board subcommittees had been strongly recommended as a potential mechanism for improving corporate governance. Specic tasks can be delegated by the main board to a smaller group of board members, thereby maximising the contributions and talents of individual board

2. Literature review
This section reviews the evolution of corporate governance guidelines; discusses potential incentives for the formation of board sub-

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members. Kesner (1988) in fact argues that most important board decisions originate at the committee level. Vance (1983) also posited that there are four board committees that greatly inuence corporate activities: the audit, executive, compensation, and nomination committees. These studies, and others, have related board composition to issues of rm performance and earnings management. Xie et al. (2003) have argued that outside directors may be more important on board committees that handle agency issues (e.g., audit and compensation committees), and inside directors may best use their company knowledge on committees that focus on rm-specic issues (e.g. investment and nance committees). Similarly, a study by Carson (2002) of 361 of the largest 500 Australian companies found: (1) audit committee presence to be positively associated with both Big 6 auditors and the number of intercorporate relationships of directors of the board; (2) remuneration committees to be positively associated with Big 6 auditors, intercorporate relationships, and high levels of institutional ownership; and (3) the presence of nomination committees to be not associated with auditors, directors, or investors, but to be positively associated with board size and leverage. Carson (2002) also concluded that audit committees are a highlydeveloped and mature corporate governance mechanism; remuneration committees were classied as developing committees, and nomination committees were deemed to be relatively immature. Thus, rms may have the incentive to form technology committees based upon the results of their past experiences with other board committees.

to identify any advantages (Rubach and Picou, 2005, 3536). Another study related to rst-mover advantages by Khallaf and Skantz (2007) on the effects of information technology expertise on the market value of the rm found evidence that the market penalises rms that fail to move quickly to obtain the potential strategic advantages of new Chief Information Ofcer positions. Given that SOX and stock exchange regulations do not currently require the appointment of board-level technology committees for publicly-listed rms, an argument can be made that rms engaged in the formation of such committees recognise the importance of technology-related matters to such rms and voluntarily disclose and form such committees in order to signal their superior technologyrelated corporate governance. This study thus is expected to add to the literature on the voluntary adoption of corporate governance measures in the post-SOX era. We are not aware of any research to date that have examined the relationship between the voluntary adoptions of board committees (such as technology committees), corporate governance, and rm performance.

2.4. The association between board composition, corporate governance, and rm performance
Prior studies have examined board composition (in terms of the number of outside and inside directors) and corporate governance. Deutsch (2005) prepared a meta-analysis of the composition of boards of directors (in terms of the percentage of outside directors) and related the analysis to critical decisions (including R&D expenditures, debt intensity, CEO turnover, and takeover defenses) undertaken by the board. Deutsch found that a higher percentage of outside board members were modestly related to lower R&D expenditures, and found positive relationships between the percentage of outside directors and debt intensity, CEO turnover, and the adoption of takeover defenses. Other studies have examined the relationship between the number of directors on the board and rm nancial performance. Dalton et al. (1998), in a meta-analyses of 54 empirical studies related to board composition and 31 studies related to board leadership structure, found little evidence of a systematic relationship between corporate governance structure (related to board size) and the nancial performance of the rm. However, in another metaanalysis performed by Dalton et al. (1999), adding rm size to such a model moderated

2.3. Applying rst-mover advantage to the formation of board committees

First-mover theory has long been applied to product innovation rms that are rst to introduce a product into the marketplace in expectation of gaining several types of market advantages (Tufano, 1989). Such rst-mover advantages can also be related to rms that enact good governance practices (Rathi, 2000). Rubach and Picou (2005) commented that further research should continue to identify any advantage(s) to rms adopting or announcing corporate governance guidelines: The failure of companies to receive a benet from the SEC ling may explain why more rms have stopped announcing corporate governance guideline adoption; however, as the adoption of various governance mechanisms continues, especially with the changes mandated by SOX, future research should continue

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the board size corporate nancial performance relationship, and the authors found a signicant statistical relationship for both large- and small-rm size groups. Finally, Daily and Dalton (2004, p. 16) state that the results of research over a 40-year period comprising over 40,000 rms . . . nd there is no evidence of a systematic relationship between board composition and corporate performance, and such results hold for a variety of board composition measurements and whether performance is accounting-based or a market-based measure of performance. More recent studies have focused on the inner workings of the board via board composition. One primary role of the board is to oversee the long-term investment strategy of the rm (Fama 1980). For instance, investment and nance committees review and approve long-term investment strategies, annual nancing policies, and projects. They also review dividend policies. A study by Klein (1998) for rms listed in the S&P 500 nds a signicant and positive relationship between the percentage of inside directors on the nance and investment board committees and accounting and stock market performance measures. These ndings support the contention that internal managers contribute valuable specic information about the organizations activities.4 For technology committees, boards will need specialised, expertprovided information about the rms technology activities to then evaluate and ratify the rms long-term technology strategy, both from internal and external sources.5

technology strategies. Independent directors on the technology committee should thus be effective monitors, a strategy which has been endorsed by the SEC in its governance reforms (related to board audit and compensation committees) of 2003. Firms forming technology committees may also receive favorable reviews from corporate governance rating and credit agencies as a result of voluntarily establishing such board-level committees. Following Lang and Lundholm (1993), Wallace et al. (1994), Camfferman and Cooke (2002) and Alsaeed (2005), we consider rm characteristics which are potential proxies for the degree of variation related to a rms voluntary decision to form a technology committee as our the independent variables and classify them into two categories: (1) performance-related variables (protability and liquidity), and (2) a structure-related variable (leverage). We also include control variables for size, the amount of research and development spending (including in-process acquired research and development expenses) by the rm, and Tobins q. This last measure is a gauge of overall rm performance (Tobin, 1969). For reasons explained later, we also use an additional variable related to corporate governance-the Quality of Financial Statement Transparency and Related Disclosure (S&P Composite Disclosure Index) for each sample rm rst as an independent variable and then as a dependent variable.

3.2. Performance-related variables

It may be argued that large rms with high levels of protability receive greater scrutiny from the public and may respond with increased measures of board oversight, such as the formation of technology committees. Singhvi and Desai (1971) found that rms with higher protability supply additional information to both placate investors and increase management compensation. Firms with strong protability ratios may thus have greater incentive to exhibit rst-mover conditions with regards to forming technology committees. The formation of such committees may thus signal their technological prowess and governance implications to both external and internal stakeholders. To that end, we use both net prot margin and return on equity as nancial performance measures, and post that: H1: Firms with higher net prot margins are more likely to establish technology committees than less protable rms. H2: Firms with higher returns on equity are more likely to establish technology committees than rms with lower returns on equity.

3. Hypotheses development and variable measurement

3.1. Board stewardship and rm performance
A major function of the board of directors in a rm is to alleviate the potential for agency conicts between shareholders and upper management (Fama and Jensen, 1983). According to the charters of S&P rms forming boardlevel technology committees, the technology committees review the key product and technology strategies developed by internal managers. Therefore, it seems logical that this review at the board level may help mitigate the conict between shareholders and upper management, and also help align the goals of internal managers with those of rm shareholders. Boards with high-risk investments in technology need specialised, expert-provided information about the rms related activities in order to evaluate and ratify their long-term

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Similarly, rms with higher liquidity ratios in the form of working capital are also more likely to signal their strong nancial condition to short-term lenders and/or suppliers. As rms assets include technology-related investments (both tangible and intangible), and their prots include the expensing of research and development costs, both the balance sheet and income statement are affected by rms management of technology investments. We expect rms that establish technology committees to signal their market and nancial strength and their resultant ability to both invest and manage technologyrelated investments which in turn maximise working capital and return on assets. Therefore, we posit that: H3: Firms with higher returns on assets are more likely to establish technology committees than rms with lower returns on assets. H4: Firms with higher liquidity in terms of working capital are more likely to establish technology committees than rms with lower levels of working capital.

(the market value of the rm divided by total assets) is used as a measure of overall market performance (Bhattacharya et al., 1997), an effective predictor of future operating efciency (Faught et al., 1995), and a model which relates the market value of a rm to the capital goods and intangibles that a rm owns (Brynjolfsson et al., 2001). Creating a new technology committee may potentially contribute to the long-term performance of the rm and its related intangible value; therefore, Tobins q may provide a more reliable measure of the technology committees contribution to rm value than traditional accounting-based measures of performance.

3.4. Measures of corporate governance and nancial performance

Many types of summary measures are available as proxy measures for rms corporate governance. The often-used 24-factor G-Index derived by Gompers et al. (2003) is primarily an anti-takeover measure (Cremers and Nair, 2005). It covers only two dimensions of governance (charter/bylaws and state of incorporation) and was constructed before the end of the 2003 SEC and major stock exchange governance reforms. Brown and Caylor (2006) created a broader, 51-provision measure of corporate governance named Gov-Score6, based on a new data set provided by Institutional Shareholder Services, compiled (in a binary manner) before and after the governance reforms initiated by SOX and mandated by the major stock exchanges, for a larger group of rms. Brown and Caylor (2006) relate corporate governance to nancial performance for 1,757 rms, use return on equity and return on assets as their measures of nancial performance, and nd that nancial performance is higher when corporate governance is higher. They claim that their Gov-Score, based upon ISS-provided data, provides distinct advantages over similar types of governance ratings, including broader coverage of more rms, and coverage which is more dynamic in reecting the recent changes in the corporate governance environment. We use the Standard and Poors (S&P, hereafter) corporate T&D (T&D hereafter) measure in this study. S&P evaluate corporate T&D by searching for the inclusion of 98 information items that exist in the annual reports and accounts of rms. These items are then grouped into three major subcategories: ownership structure and shareholder rights, nancial transparency and information disclosure, and board process and structure. A composite rating is then developed by S&P for each rm

3.3. Structure-related variable

Highly leveraged rms may disclose more information voluntarily in order to satisfy the needs of their creditors. Therefore, highlyleverage rms are more likely to establish technology committees in order to reduce their monitoring costs and to satisfy the needs of creditors. Such committees should also signal such rms condence in their ability to service their debt and related covenant requirements. Consistent with prior studies such as Lang and Lundholm (1993), Wallace et al. (1994), Camfferman and Cooke (2002), and Alsaeed (2005), we include rm leverage ratio as a structure-related variable. We therefore posit that: H5: Highly leveraged rms are more likely to establish technology committees than rms which have lower levels of leverage. 3.3.1. Control variables We include a variable in our regression to control for size (natural log of total assets). We also include the amount of research and development (R&D) expense incurred by the rm (from the income statement, including any in-process R&D expenses) as a control variable. Although GAAP requires the expensing of R&D expenses, the market perceives such costs to have benets to the rm that exist beyond the current period. Finally, Tobins q

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(the composite rating can range from a score of zero to 100 zero being the lowest and 100 being the highest governance rating). We believe that the S&P composite T&D rating is unique due to the comprehensive nature of the evaluation of rm structure, rm nancial statement transparency, and board structure. Furthermore, Chiang (2005) adopted the same S&P measurement criteria in an empirical study of 225 Taiwanese rms and found that corporate transparency and good corporate governance were signicantly and positively related to nancial performance. Based on the comprehensive nature of the S&P model and bolstered by the results of the Chiang (2005) study, we posit that rms with higher corporate governance ratings and stronger nancial performance will be rst-movers and establish technology committees that signal these conditions to the marketplace.

that the committees were formed between 2003 and 2005 (post-SOX in 2002).

4.2. Methodology
4.2.1. Binary logistic regression Logistic regression is very similar to traditional regression analysis and can be used simultaneously to predict the probability of an event (Hair et al., 1998). Logistic regression is also used in studies where the dependent variable is not a quantitative or continuous variable (George and Mallery, 2000). It tests the ability of a model or group of independent variables to predict group membership as dened by a categorical variable. It can also provide several distinct advantages over multiple regression techniques as the independent variables do not have to be normally distributed, linearly related or have equal variances within each group. This makes logistic regression more exible than other parametric techniques (Tabachnick and Fidell, 1996). We employ a binary logistic regression with a dichotomous dependent variable (1 if a rm has a technology committee, 0 otherwise). Our goal is to predict rms with technology committees, using the specied performance and structure-related variables above. In order to run the logistic regression, the 46 rms (23 rms with a technology committee and the 23 matched pair rms) were randomly divided into two equal groups. The rst group was then used to develop a model later validated by the holdout group. The logistic regression thus helped identify which of the independent variables were potentially the best predictors of rms with technology committees.

4. Research methodology and statistical design

4.1. Sample selection
A list of the S&P 500 members was obtained as of January 31, 2006. Twenty-eight members of the S&P 500 were found to have technologyrelated committees at a board-level using the Audit Analytics1 database. Three rms from the nancial sector and two rms from the regulated utility sector were eliminated7, resulting in a nal population of 23 rms with board-level technology committees (see Appendix A).8 The nal population of 23 rms was also re-conrmed by accessing the investor relations section of the web site for each rm to conrm the existence of the technology committee.9 The charters for each technology committee were also downloaded from the investor relations web site for each of the rms to determine the nature and purpose of the related technology committee.10 Financial data used in the study was obtained from Compustat; data not available on Compustat was collected from the latest audited Form 10-K. A matched pair for the 23 rms with technology committees was obtained (matched by four-digit SIC code and latest annual revenues) and data was again collected either from Compustat or from the latest audited Form 10-Ks for the matched pair rms. Firms were also matched on scal year end where possible. Though information was not available on the exact formation date of the technology committee for each of the 23 rms, information that could be obtained from rms disclosing the formation date (18 of the 23 rms) indicated

4.2.2. Discriminant analysis Another categorising technique discriminant analysis classies groups based on a combination of measures and then focuses on the description of differences that exist in groups (Pedhazur, 1982; Tatsuoka, 1988; Stevens, 1992). It is also an appropriate statistical technique when the dependent variable is categorical or consists of two groups or classications (Hair et al., 2006). The technique generates discriminant functions derived from linear combinations of the independent variables that best discriminate among or between groups. We use discriminant analysis in an effort to triangulate the results of the logistic regression and in order to determine the best variables that predict rms propensity to form technology committees.11

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4.2.3. Multiple regression analysis Following the results of the logistic regression and discriminant analysis, we used multiple regression analysis to answer the main research question, viz: Is there a relationship between rm performance, corporate governance, and a rms decision to form technology committees? We conducted fundamental tests of the underlying assumptions for multiple regression analysis in order to ensure that the data were conducive to such analyses. For example, we analysed the relationships between the independent variables as well as the relationships between the dependent and independent variables using correlation coefcients for every potential pair of variables used in the study. Multicollinearity tests were developed using variance ination factors (VIF) to test for the presence of multicollinearity between each of the independent variables. The results of the tests for multicollinearity depended upon the values of the VIFs for all independent variables. Pearson correlation analysis with a condence level of alpha = 0.10 were used. In the presence of multicollinearity, we considered removing the independent variable with the least predictive ability in the analysis. It was important to address multicollinearity in order to ensure that each of the independent variables adequately and correctly explained its role in bringing about changes in the dependent variable.

that represent the leading companies in the S&P/IFCI emerging markets index. These 1,600 companies cover 40 countries and represent about 70 per cent of the worlds tradable market capitalisation. S&P evaluates corporate T&D by searching for the inclusion of 98 information items that exist in the annual reports and accounts of these 1,600 rms. These items are then grouped into three subcategories: ownership structure and shareholder rights, nancial transparency and information disclosure, and Board process and structure12. A composite rating is then developed by S&P for each rm from the scores developed in the rating process (the composite rating can range from a score of zero to 100). We use the S&P T&D study scores developed for each rm in this study as a proxy for corporate governance.

4.4. Challenges facing corporate governance studies

Endogeneity is an econometric problem related to most corporate governance studies. The problem is related to the use of an instrument variable, like corporate governance measures, in a structural model. Here the instrument should be highly correlated with the variable of interest but uncorrelated with the error term of the true structural model (Larcker and Rusticus, 2005). To partially mitigate the endogeneity problem, some studies like Brown and Caylor (2006) follow Klein (1998) and include the lagged value of the industry mean-adjusted nancial performance in the regression model. If the corporate governance score variable remains signicant in the expanded model, one can rule out reverse causality, but only to a limited extent, and the ndings mitigate but do not entirely eliminate endogeneity concerns. We address this by using two different measures for corporate governance (the S&P and the ISS measures), though again this only partially mitigates our endogeneity concerns.

4.3. The quality of nancial statement transparency and related disclosure variable
The Quality of Financial Statement Transparency and Related Disclosure is not an empirically-dened variable. However, it is in keeping with past studies that have used qualitative terms such as adequacy, extent, and comprehensiveness, among others. For instance, Camfferman and Cooke (2002) operationalised an index of EU disclosure indexes for Dutch and UK rms, analysing the information contained in sample rm annual reports to the 4th and 7th EU Directives. Other studies, including Chiang (2005) and Alsaeed (2005) have developed disclosure indexes using variances of the S&P Corporate Governance Evaluation system or a list of voluntary disclosure items in rm annual reports developed by Meek et al. (1995), Botosan (1997) and Naser and Nusuerbeh (2003). The Quality of Financial Statement Transparency and Related Disclosure variable used here are based on the S&Ps T&D study (T&D study hereafter). This T&D study includes the S&P Global 1200 index and another 400 rms

5. Statistical analysis and results

5.1. Descriptive statistics
Table 1A shows the descriptive statistics for the 23 rms with a technology board committee and the 23 matched pair rms. The minimum and maximum values indicate a wide variation in the data for the subject rms. In terms of mean values, a number of trends can be observed in the descriptive statistics for the 23 Technology Committee rms: as expected, high levels of research and development expenses (almost $1.7 billion average R&D expense per rm);

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Table 1A: Descriptive statistics: rms with technology committees and matched pair rms Technology Committee Firms Variable S&P Code ISS CGQ R&D Exp. NPM ROE LEV ROA WC Tobins q LOGTA Minimum 62.240 11.300 0.000 0.030 0.030 0.000 0.020 0.810 0.630 21.540 Maximum 78.350 95.400 9,094.000 0.310 0.590 2.970 0.190 3.520 5.080 25.490 N = 23 Std. Dev. 4.286 24.657 2,409.934 0.072 0.129 0.619 0.046 0.655 1.084 1.259 Matched Pair Minimum 53.000 0.000 0.000 -0.070 -0.600 0.000 -0.070 1.090 0.310 20.430 Firms Maximum 84.000 95.400 4,846.000 0.220 0.640 1.720 0.200 3.410 4.490 25.230 N = 23 Std. Dev. 6.543 31.224 1,542.767 0.067 0.208 0.488 0.064 0.652 1.141 1.242

respectable protability, earning almost a 14 per cent net prot margin, a 25.7 per cent average return on equity, and an 11 per cent return on assets; relatively high levels of debt, with an average leverage ratio of 0.40 (only 3 out of the 23 rms did not have any long-term debt); and relatively strong liquidity, as evidenced by a working capital ratio of almost 1.9 to 1. The mean of the S&P rm T&D index code is about 69 (on a scale of zero to 100), which implies that rms with high S&P governance ratings try to protect these ratings by forming technology board committees. These rms have the most to gain by forming such committees to protect their investments in research and development projects and any other associated benets that may accrue to them from a high governance rating (such as a lower cost of capital and associated borrowing costs, for example). Table 1B shows the results of the T-test comparison of means and the non-parametric Wilcoxon Signed Rank test comparison of medians between the 23 rms with a technology committee and the 23 matched pair rms. Signicant differences are found between the two groups in both tests for three out of the nine independent variables (R&D expense, net prot margin, and return on equity p < 0.05); a signicant difference in medians is also found for the variable return on equity (p = 0.045). We infer from these results that our matching methodology (matching the rms with technology committees to rms in the same 4digit SIC based upon annual revenues) is adequately robust for application in the next stage of our statistical tests.

5.2. Logistic regression results

Forward binary logistic regression (whereby the independent variables are entered one at a time and the likelihood-ratio is used to determine variable selection) is used to test the ability of the model to predict if a rm will establish a board-level technology committee. A random sample of 23 rms from the 46-rm data set (including the matched pair rms) is used to build a model, and a holdout sample of the remaining 23 rms is used to test the predictive accuracy of the model. For the categorical dependent variable used in the logistic regression, rms with a technology committee were coded as 1 and the related matched pair rms were coded with a zero. Mahalanobis (1936) distances were rst calculated to identify outliers and to check for multicollinearity among the seven predictor variables. No outliers were found and multicollinearity was not a concern in the modelbuilding group of rms. Table 2 shows the related regression coefcients for the model-developing group of rms. It is interesting to note that the only signicant variable found in this modeldeveloping regression is return on equity (p = 0.040). Regression results for the modeldeveloping group indicate that the model was statistically reliable in distinguishing among rms that have and do not have a board-level technology committee based upon the independent variables included in the model (-2 Log Likelihood-index model of t = 13.413, Chi-Square Goodness of Fit (1) = 18.429, p = 0.000). The Cox & Snell R2 (0.551) and Nagelkerke R2 (0.735) measures (essentially two different measures of R2) were also acceptable. The model-developing sample resulted

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Table 1B: Firms with technology committee and matched pair rms: comparison of sample means and medians Technology Committee Firms Variable S&P Code ISS CGQ R&D Exp. NPM ROE LEV ROA WC Tobins q LOGTA Mean 69.163 58.960 1,697.717 0.139 0.257 0.401 0.111 1.873 2.259 23.332 Median 69.070 61.300 391.000 0.128 0.263 0.254 0.122 1.766 2.110 23.534 Mean 70.584 41.161 1,071.987 0.103 0.164 0.464 0.094 1.865 2.001 22.916 Matched Pair Firms Median 71.000 31.800 153.000 0.103 0.182 0.281 0.097 1.713 1.800 22.689 T-test-diff. of Means p-value 0.455 0.028 0.032 0.008 0.077 0.576 0.158 0.964 0.293 0.066 Wilcoxon Test-diff of Medians p-value 0.162 0.048 0.028 0.006 0.045 0.523 0.301 0.879 0.403 0.083

p-values are two-tailed. S&P Code is the Standard & Poors Transparency and Disclosure Rating. ISS CGQ is the Institutional Shareholder Services (ISS) Corporate Governance Quotient (CGQ). R&D Exp. is the research and development and in-process R&D expenses on the income statement. NPM is net income divided by total revenues. ROE is net income divided by average shareholders equity. LEV is long-term debt divided by average shareholders equity. ROA is net income divided by average total assets. WC is current assets divided by current liabilities. Tobins q is the number of common shares outstanding times the end of year stock price divided by total assets. LOGTA is the natural log of total assets. T-test is difference of means for each regression model variable of the sample rms with a Technology Committee and 23 Matched Pair rms without a Technology Committee. Wilcoxon Signed Rank Test is difference of medians for each regression model variable of the sample rms with a Technology Committee and 23 Matched Pair rms without a Technology Committee.

in the correct classication of rms as either having or not having a technology committee 91 per cent of the time. Table 3 shows the regression results for the holdout sample. The regression results for the holdout sample were similar to the modeldeveloping group of rms and statistically reliable in distinguishing among rms that have board-level technology committees and those that do not (-2 Log Likelihood-index model of t = 24.560, Chi-Square Goodness of Fit (1) = 7.281, p = 0.007). The Cox & Snell R2 (0.271) and Nagelkerke R2 (0.362) measures were also acceptable. The holdout sample of rms resulted in the correct classication of rms as either having or not having a technology committee 65 per cent of the time. Research and development expense is the only signicant variable in the holdout sample regression (p = 0.013). While the above results lend support to the expectation that corporate governance, return on equity, and research and development expenses drive rms to form technology committees, it is important to note the limited

population size of only 23 rms in the S&P 500 having a technology committee. This makes it difcult to draw any denitive conclusions from the results of the logistic regression alone. An important outcome of both the modeldeveloping and holdout sample rms is that removing the S&P corporate governance score reduces the effectiveness of both models dramatically (p < 0.003). Removing any of the other eight independent variables (individually) does not have the same signicant impact as removing the S&P score. This suggests that the S&P governance score is driving the classication (and perhaps the decision process) of rms to form technology committees. This suggests that rms that are rst-movers in the voluntary formation of board technology committees reduce agency problems by closely monitoring management in the formation of research and development strategies and simultaneously protecting the rms governance rating. In order to further investigate the potential impact of the S&P rating variable on the classication of rms with technology

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Table 2: Regression coefcients (a)-logistic regression model-23 model-developing rms Unstandardised Coefcients Variable (Constant) S&P Code R&D Exp. NPM ROE LEV ROA WC Tobins q LOGTA B 3.364 -0.058 0.000 3.782 2.033 -0.399 -6.344 0.132 -0.274 0.058 Std. Error 3.905 0.033 0.000 2.548 0.890 0.375 3.749 0.144 0.157 0.107 Standardised Coefcients Beta t 0.861 -1.757 1.141 1.485 2.283 -1.064 -1.692 0.921 -1.744 0.542 p-values 0.405 0.102 0.275 0.161 0.040 0.307 0.114 0.374 0.105 0.597 Collinearity Statistics Tolerance VIF

-0.509 0.323 0.516 0.837 -0.344 -0.698 0.183 -0.562 0.158

0.292 0.304 0.202 0.182 0.234 0.144 0.623 0.236 0.287

3.425 3.284 4.942 5.495 4.273 6.953 1.605 4.244 3.485

a Dependent Variable: 1 = Technology Committee; 0 = Matched Pair Firm. p-values are two-tailed. S&P Code is the Standard & Poors Transparency and Disclosure Rating. R&D Exp. is the research and development and in-process R&D expenses on the income statement. NPM is net income divided by total revenues. ROE is net income divided by average shareholders equity. LEV is long-term debt divided by average shareholders equity. ROA is net income divided by average total assets. WC is current assets divided by current liabilities. Tobins q is the number of common shares outstanding times the end of year stock price divided by total assets. LOGTA is the natural log of total assets.

Table 3: Regression coefcients (a)-logistic regression model-23 holdout rms Unstandardised Coefcients Variable (Constant) S&P Code R&D Exp. NPM ROE LEV ROA WC Tobins q LOGTA B -1.917 -0.016 0.000 1.302 2.175 -0.269 -4.763 -0.089 0.116 0.161 Std. Error 4.082 0.018 0.000 1.921 1.760 0.298 4.634 0.238 0.108 0.149 Standardised Coefcients Beta t -0.469 -0.885 -2.861 0.678 1.236 -0.901 -1.028 -0.372 1.073 1.079 Sig. 0.646 0.392 0.013 0.510 0.238 0.384 0.323 0.716 0.303 0.300 Collinearity Statistics Tolerance VIF

-0.198 -0.913 0.189 0.578 -0.340 -0.518 -0.103 0.270 0.356

0.739 0.365 0.477 0.170 0.262 0.146 0.482 0.586 0.342

1.354 2.741 2.097 5.889 3.819 6.839 2.075 1.705 2.927

a Dependent Variable: 1 = Technology Committee; 0 = Matched Pair Firm p-values are two-tailed. S&P Code is the Standard & Poors Transparency and Disclosure Rating. R&D Exp. is the research and development and in-process R&D expenses on the income statement. NPM is net income divided by total revenues. ROE is net income divided by average shareholders equity. LEV is long-term debt divided by average shareholders equity. ROA is net income divided by average total assets. WC is current assets divided by current liabilities. Tobins q is the number of common shares outstanding times the end of year stock price divided by total assets. LOGTA is the natural log of total assets.

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committees, we used discriminant analysis to conduct the second stage of our analysis. For the discriminant analysis, we used the S&P rating variable as the dependent variable in order to determine if the 46 rms (23 rms with technology committees and 23 rms in the matched pair group) cluster around this variable based upon the other six independent variables that we hypothesise as driving the need for rms to form technology committees. Should the discriminant analysis show clustering, we may view the S&P governance rating variable as the catalyst leading to rms decisions to form technology committees comprised of subsets of their boards of directors.

5.3. Discriminant analysis results

Discriminant analysis was performed on all 46 rms to determine if the remaining eight independent variables reliably and accurately predicted rms with technology committees. Prior to conducting the discriminant analysis, the data was screened for missing data and outliers and none were found. The data was also tested for normality, linearity, and homogeneity of variance. No outliers were found in the data using Mahalanobis (1936) distance and Chi-Square analysis. The independent variables were entered using the stepwise method. The ANOVA results (results not reported for parsimony) indicate that two of the predictor variables (return on equity, p = 0.003 and return on assets, p = 0.030) show signicant group differences in predicting rms that establish technology committees.13 We then test for the degree to which there are signicant group differences in the independent variables after the effects of the previously mentioned functions have been removed. The test (results not reported for parsimony) shows that six canonical functions were generated, and only the test of functions 1 through 8 was signicant (Wilks Lambda = 0.059, Chisquare (152, N = 46) = 180.179, p = 0.059). This indicates that the function of the predictors (the independent variables in the model design) signicantly differentiated between rms with and without technology committees. The canonical correlation (results not reported for parsimony) also indicates that these functions are highly related to the levels of the dependent variable, S&P governance rating (r = 0.919). Squaring this canonical correlation produces the effect of the variance in the functions accounted for by the dependent variable (S&P rating), which is 84.5 per cent. The next step in the discriminant analysis was to examine the variables most related to the functions (independent variables) in the

discriminant model using the standardised canonical discriminant function coefcients (which show the degree to which each variable contributes to each function) and the structure matrix (which shows the correlation coefcients between the independent variables and the function). Evaluation of the standardised discriminant function coefcients (results not reported for parsimony) reveals the log of total assets variable (in 2 out of the 8 functions) with the highest factor loading. In contrast, variable correlations with the functions (structure matrix results not reported for parsimony) indicate that each of the independent variables individually has a strong relationship within the various functions. These differences in the correlation coefcients and the functions make it somewhat difcult to interpret the function; however, both statistics indicate that all of the variables potentially could predict rms with or without technology committees, with return on assets being the strongest predictor variable. The nal step in interpreting our discriminant analysis was to evaluate the accuracy of the functions in classifying the 46 rms into appropriate groups (with or without technology committees). Initial classication indicated that 79.2 per cent of the cases were correctly classied; cross validation supported this level of accuracy in the classication of the rms (76.7 per cent). These results suggest a strong connection between S&P rating (especially for those rms with higher ratings) and the independent variables. This led to the nal stage of the statistical analysis as described below.

5.4. Testing the validity of the multiple regression model

The Pearson correlation coefcients show the strength of the linear relationships between the variables in the regression and help determine whether any of the independent variables in the regression are highly correlated. The results (results not reported for parsimony) indicate the highest degree of correlation (0.734) was between R&D expense and the log of total assets; no other correlation exceeded 0.670. To further test for multicollinearity, the VIF was calculated for each independent variable. Myers (1990) suggests that a VIF value of 10 is cause for concern. Alternatively, according to Bowerman and OConnell (1990), if the average VIF for the independent variables is substantially greater than one, the regression may be biased. Additionally, according to Mertler and Vannatta (2002), if the tolerance statistic for any individual indepen-

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Table 4: Regression results and coefcients-S&P transparency and disclosure rating as the dependent variable for the 23 rms with a technology committee (a) Unstandardised Coefcients Variable (Constant) R&D Exp. NPM ROE LEV ROA WC Tobins q LOGTA B 64.547 0 -4.311 -3.264 1.434 -36.906 2.305 0.822 0.124 Std. Error 43.852 0.001 22.616 18.293 3.031 60.562 2.287 1.321 1.738 Standardised Coefcients Beta t 1.472 0.387 -0.191 -0.178 0.473 -0.609 1.008 0.622 0.071 p-value 0.163 0.704 0.852 0.861 0.643 0.552 0.331 0.544 0.944

0.167 -0.073 -0.098 0.207 -0.394 0.352 0.208 0.036

(a) dependent variable is S&P Transparency and Disclosure Rating for each rm. p-values are two-tailed. R&D Exp. is the research and development and in-process R&D expenses on the income statement. NPM is net income divided by total revenues. ROE is net income divided by average shareholders equity. LEV is long-term debt divided by average shareholders equity. ROA is net income divided by average total assets. WC is current assets divided by current liabilities. Tobins q is the number of common shares outstanding times the end of year stock price divided by total assets. LOGTA is the natural log of total assets.

dent variable is less than 0.1, the regression should be repeated by omitting the violating independent variable. The results (not shown for parsimony) show that all of the independent variables had VIF values of less than 8, the average VIF statistic was greater than 1, and none of the tolerance statistics for the independent variables were less than 0.1. We also conducted the Durban-Watson test for autocorrelation in the data for the 23 rms. According to Field (2000), values for the Durban-Watson statistic of less than 1 or greater than 3 may violate the assumption of independent error terms. The Durban-Watson statistic in the regression was 1.188. In conclusion, the regression model appears to be robust.

terms of its empirical denition and endogeneity. In order to test the regression results further, a series of robustness tests were performed on the technology rm data, including using another independent rating of each rms corporate governance which is more recent that the S&P rating.

5.6. Robustness tests

In addition to the S&P rm governance ratings, individual rm ratings are obtained from another rating agency, Institutional Shareholder Services (ISS). ISSs corporate governance ratings (called the corporate governance quotient or CGQ) are used in many empirical studies related to corporate governance and rm performance, including most recently the Brown and Caylor (2006) study.14 We obtained the latest CGQ ratings on the 23 rms with a technology committee and substituted the ISS CGQ rating for the S&P rating in the regression analysis. The model shows an improvement in the regression models ability to predict the governance rating dependent variable using the ISS CGQ rating (Adjusted R2 = 0.275) compared to the regression model using the S&P governance score regression (Adjusted R2 = 0.137). Table 5 shows the related regres-

5.5. Multiple regression results

Table 4 shows the regression model summary. While the results of the overall model are signicant (p = 0.000), the results are inconclusive with regards to the association of the various independent variables with the S&P governance rating for rms with technology committees (none of the variables are signicant-see Table 4). As was discussed in Section 4, a limitation of this study is the use of the S&P Firm T&D Score variable, both in

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Table 5: Regression results and coefcients-ISS CGQ scores as the dependent variable for the 23 rms with a technology committee (a) Unstandardised Coefcients Variable (Constant) R&D Exp. NPM ROE LEV ROA WC Tobins q LOGTA B -104.817 -0.005 246.738 211.234 -17.056 -669.821 11.825 1.080 6.022 Std. Error 201.498 0.004 103.920 84.057 13.926 278.279 10.509 6.072 7.985 Standardised Coefcients Beta t -0.520 -1.496 2.374 2.513 -1.225 -2.407 1.125 0.178 0.754 p-value 0.611 0.157 0.032 0.025 0.241 0.030 0.279 0.861 0.463

-0.515 0.725 1.105 -0.428 -1.243 0.314 0.047 0.307

(a) dependent variable is ISS (Institutional Shareholder Services) CGQ (Corporate Governance Quotient) for each rm. p-values are two-tailed. R&D Exp. is the research and development and in-process R&D expenses on the income statement. NPM is net income divided by total revenues. ROE is net income divided by average shareholders equity. LEV is long-term debt divided by average shareholders equity. ROA is net income divided by average total assets. WC is current assets divided by current liabilities. Tobins q is the number of common shares outstanding times the end of year stock price divided by total assets. LOGTA is the natural log of total assets.

sion coefcients using the ISS CGQ governance ratings for the 23 technology committee rms. Similar to what was found in the discriminant analysis, return on equity (p = 0.025) and return on assets (p = 0.030) were found to be signicant variables, lending support for H2 and H3. Net prot margin (p = 0.032) was also found to be signicant using the ISS, lending support for H1. No support was found using either the S&P Transparency Rating or the ISS CGQ governance rating for H4 or H5. These results are similar to Brown and Caylors (2006), who found that companies with weaker corporate governance perform more poorly, are less protable, and have higher stock price volatility than rms with stronger corporate governance. These results again suggest a strong connection between corporate governance and at least three (return on equity, return on assets, and net prot margin) of the independent variables in our regression model. Four of the 23 S&P rms with technology committees actually had no research and development expenses in their latest audited nancial statements.15 We thus removed these four rms and performed the regressions again for the remaining 19 rms, using the

S&P score and ISS CGQ scores as the dependent variable in two separate regressions. The regression results (results not shown, but similar to Tables 4 and 5) were similar to the previous regression results for both the S&P and ISS CGQ governance ratings except for the ISS regression. Here research and development expenses were now a signicant variable (similar to the results of the logistic regression model in Table 3, where R&D expenses were found to be signicant contributors to developing the model). We also determined the 2 and 4-digit industry SIC code medians for the variables in our study, and converted the variables in our regression to dichotomous variables (1 if the technology committee rm amount exceeded the industry median, 0 otherwise); we then attempted to run our regressions again shown in Table 4 and 5 after this conversion. As many of the 23 rms with a technology board-level committee are industry leaders, the majority of our dichotomous variables (in most cases, over 80 per cent) were in excess of the industry median; such a bias also biases the resulting regression coefcient results, rendering them of limited interpretative value.

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5.7. Discussion and results summary

Our logistic regression results suggest that governance rating may drive the decision to form technology committees. This is also suggested by our discriminant analysis and our robustness tests. In the multiple regression analysis, the overall model with governance rating as the dependent variable is signicant in predicting rms that form technology committees. The regression results are robust to using a different measure of corporate governance for the 23 rms with technology committees. We thus nd empirical support for H1 through H3 which posited that rms with higher net prot margins, higher returns on equity, and higher returns on assets are more likely to establish technology committees than less protable rms. However, we do not nd support for H4 and H5 which posited that rms with higher liquidity in terms of working capital or highly leveraged rms are more likely to establish technology committees. This leads us to postulate that the main reason for early rm formations of a technology committee may be strategically related to either maintaining or improving rm market position and the resulting protability of such rms as opposed to maintaining or strengthening such rms balance sheets. This result is also conrmed by the descriptive statistics, which show that rms forming a technology committee are very protable, with what appear to be adequate levels of working capital and low levels of leverage.

6. Conclusions, limitations, and future research possibilities

Our results suggest that that corporate governance is signicantly and positively related to a rms decision to voluntarily form a technology committee. Specically, rm performance ratios such as return on assets, return on equity, and net prot margin appear to be associated with a rms decision to form a technology committee. First-mover advantage is premised on the belief that the market expects rms to adopt value-maximising strategies. Seen in this light, the voluntary formation of a board-level technology committee by a rm may be rewarded by the marketplace in terms of the rms stock performance and/or improved corporate governance ratings. These favourable outcomes in turn may also prove benecial to such rms in terms of their future cost of capital. The limitations of our study include the very small sample size of S&P 500 rms with

board-level technology committees at this time. We would, therefore, recommend a replication of our study in the future as more rms decide to appoint technology committees within their boards of directors. Another limitation of the study is the use of the S&P T&D ratings and the ISS CGQ measures of corporate governance. Prior studies including Spero (1979) have provided overwhelming evidence supporting the premise that there are no signicant differences between weighted and unweighted disclosure indices. S&Ps additive and unweighted T&D study is one of the most comprehensive and thorough analyses done by a rating agency of rmrelated corporate transparency and governance. Nevertheless, it is possible that the use of the S&P T&D ratings may not have captured the depth and importance of transparency, disclosure, and therefore corporate governance adequately. Additionally, a problem plaguing all corporate governance studies is the potential for endogeneity (Brown and Caylor, 2006). Lastly, some of the commonly used rm-specic independent variables (such as the leverage ratio and the working capital ratio) may not be the best measures of the underlying metrics (for example, determining the exact ratio by rm of interest-bearing debt to assets or using the quick ratio may change some of the results). Our ndings should be relevant to several groups of stakeholders, including the SEC and the various stock exchanges as they consider expanding the disclosure requirements for various board committees for publiclylisted rms. The opportunity exists to expand research in the area of corporate governance to determine the impact of changes in board composition (between insiders and outsiders), board committees, and the addition of new board committees on both corporate governance and rm nancial performance. Many rms are changing the number, composition, and responsibilities of their boards of directors to comply with SOX and to meet stock exchange rules regarding board composition and corporate governance. Research opportunities also exist in this area to determine if new board committees, other than technology committees, impact corporate governance and rm nancial performance (both in terms of stock market and prot performance). Additional research opportunities also exist in the areas of price performance and cost of capital implications of rms voluntarily forming incremental board committees such as the technology committees examined here that are also related to corporate governance issues.

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Acknowledgements
Data availability: Contact the rst author. We thank Standard & Poors for allowing us to use the results of the S&P Transparency and Disclosure survey in our study.

Notes
1. According to the Spencer Stuart 2005 Board Index, all of the S&P 500 rms have audit and compensation/human resource committees, 98 per cent have nominating/governance committees, 44 per cent have executive committees, 33 per cent have nance committees, 14 per cent have public policy committees, 6 per cent have investment/pension committees, 5 per cent have science and technology committees, and 4 per cent have legal compliance committees.. There were no board-level science and technology and legal compliance committees for members of the S&P 500 in 2000. 2. In their recent book on IT governance, Weill and Ross (2004) make the case that rms with superior IT governance have prots that are at least 20 per cent higher than rms with poor IT governance. 3. The SEC approved the NYSE and NASDAQ reforms on November 4, 2003 (see http:// www.sec.gov/rules/sro/34-48745.htm); the SEC approved the AMEX reforms on December 1, 2003 (see http://www.amex.com/atamex/ news / 34-48863 _ Approval _ Order _ on _Amex2003-65.pdf). 4. See Eugene F. Fama & Michael C. Jensen, 1983, Separation of Ownership and Control. Journal of Law & Economics 26: 30114. 5. In fact, an analysis of the composition of board of directors for the 23 rms in the study shows that 90 per cent of the board members are external board members. 6. Brown and Caylor (2006) provide rm-specic Gov-Score (governance score) data as of February 1, 2003 at a publicly available web site; unfortunately, many of the S&P 500 rms with technology committees did not have a Gov-Score in this freely-available database. 7. Financial sector rm balance sheets are nonclassied (therefore, no working capital ratio is available) and regulated sector debt ratios are regulated by various Federal or State-related regulatory agencies. 8. Specic technology committee names found include Science & Technology Committee and Technology Committee (the majority), Information Technology, Technology & Environment, Technology and Information Security, Technology Advisory, and Technology and Environmental Committee. 9. For example, for Johnson & Johnson, see the following web site: www.investor.jnj.com/ governance/committee.cfm

10. Four of the 23 rms did not disclose the charter for the technology committee in the investor relations web site-perhaps this is done for both strategic (Motorola, for example) and legal (Merck, for example) reasons. A check of lings on Edgar for these rms also did not locate the charter for the related technology committee (some rms le on Form 8-K the charters for board committees, as well as all and any changes to the corresponding members of all board committees, and some do not). 11. As is discussed in Ge and Whitmore (2006, p. 21), it is surprising that this multivariate method has received so little use in the accounting research literature. Discriminant analysis focuses the investigation more clearly on classication and prediction if these are the real purposes of the study. 12. The details of the S&P Transparency and Disclosure Survey Questionnaire for these 98 information items can be found at the following web site: http://www2.standardandpoors.com/ servlet/Satellite?pagename=sp%2FPage% 2FSiteSearchResultsPg&l=EN&r=1&b=10& search=site&vqt=governance&submit.x=11& submit.y=10 13. Also included in the discriminant analysis (not shown) is the Boxs M Test of Equality of Covariance Matrices, which is an indicator of the signicant differences in the covariance matrices among the group of rms. The signicant F-statistic (p = 0.000) in the Boxs M Test suggests that the homogeneity of covariance assumption might limit the interpretation of the results; according to Mertler and Vannatta (2002), the Boxs M Test is highly sensitive to non-normal distribution, and therefore the results should be interpreted with caution. 14. The corporate governance quotient (CGQ) prepared by ISS features corporate governance ratings on more than 7,500 rms worldwide and includes underlying data points for up to 61 corporate governance variables categorised under eight areas of focus. CGQ is a quantitative database. Here, rms are rated, whether they want to be or not, and rms cannot change their ratings by subscribing to the CGQ service or any other service provided by CGQ. In other words, the only way a rm can improve its governance rating is to make and publicly disclose changes in its corporate governance structure or practices. The ISS CGQ database is updated daily to reect all governance data changes that occur. In addition, every company prole is updated every 120 days. The ISS CGQ database and associated rm rating is also more recent than the S&P governance rating, which was last updated in 2003. 15. The matched pair rms for these four rms also had no research and development expenses; these rms are perhaps pondering investments in research and development or consider their technology committees as board oversight committees related to areas like information technology and security concerns in the area of Internet commerce.

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Appendix A: List of S&P 500 Firms with Technology Committee

ALLEGHENY TECH ALLERGAN INC *APPLIED BIOSYSTEMS BARD (C.R.) INC CISCO SYSTEMS CUMMINS INC ELI LILLY & CO FEDEX CORP HEWLETT-PACKARD INC HOME DEPOT INC JOHNSON & JOHNSON MEDTRONIC INC
*Part of Applera Corporation

MERCK & CO MONSANTO CO MOTOROLA INC NOVELL INC PFIZER INC PITNEY BOWES INC PROCTER & GAMBLE ROCKWELL AUTOMATION ROCKWELL COLLINS SCHLUMBERGER LTD ZIMMER HOLDINGS

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Ronald Premuroso is a PhD candidate (DBA with a concentration in Accounting) at the School of Accounting at Florida Atlantic University in Boca Raton, Florida. He formerly worked for KPMG in the audit department of the Ft. Lauderdale ofce. He also worked for Sensormatic Electronics Corporation, most recently as a Senior Vice President and President of International Operations. He is a CPA in the State of Florida. Som Bhattacharya is the Director of the School of Accounting at Florida Atlantic University in Boca Raton, Florida. Dr Bhattacharya has published in journals including The International Journal of Accounting Information Systems, Issues in Accounting Education and Journal of Accounting Education. He formerly worked for Nestle (India) Private Limited and has consulted on accounting information systems related projects both in the United States and in Mexico.

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2007 The Authors Journal compilation Blackwell Publishing Ltd. 2007