tailieunhanh - Internal control weakness and information quality

This paper explores the effect of internal control weaknesses (hereafter ICW) and their remediation on information precision for firms who filed Section 404 reports with the SEC. First, we find that the presence of ICW is associated with lower precision of both public and private information. Second, we find that the effect of ICW on public information precision is stronger for firms with firm-level ICW than for those with account-specific ICW. However, we find no such a relation for private information precision. Third, we find that the precision of both private and public information are higher for firms remedying previous weaknesses relative to firms who do not remedy their weaknesses. Further analyses indicate that overall information uncertainty is higher for ICW firms than nonICW firms. However, we find no difference in consensus among investors between ICW and non-ICW firms. The results suggest that lower precision of public information is offset by lower precision of private information such that consensus among investors is not affected. Finally, we find that firms with different internal control opinions in successive years exhibit changes in precision of public and private information, consistent with our prediction. | Journal of Applied Finance Banking vol. 5 no. 5 2015 135-169 ISSN 1792-6580 print version 1792-6599 online Scienpress Ltd 2015 Internal Control Weakness and Information Quality Tzu-Ching Weng1 Hsin-Yi Chi2 and Guang-Zheng Chen3 Abstract This paper explores the effect of internal control weaknesses hereafter ICW and their remediation on information precision for firms who filed Section 404 reports with the SEC. First we find that the presence of ICW is associated with lower precision of both public and private information. Second we find that the effect of ICW on public information precision is stronger for firms with firm-level ICW than for those with account-specific ICW. However we find no such a relation for private information precision. Third we find that the precision of both private and public information are higher for firms remedying previous weaknesses relative to firms who do not remedy their weaknesses. Further analyses indicate that overall information uncertainty is higher for ICW firms than non-ICW firms. However we find no difference in consensus among investors between ICW and non-ICW firms. The results suggest that lower precision of public information is offset by lower precision of private information such that consensus among investors is not affected. Finally we find that firms with different internal control opinions in successive years exhibit changes in precision of public and private information consistent with our prediction. JEL classification numbers H32 D8 Keywords Internal control weaknesses Information quality Firm-level account-specific weaknesses 1 Introduction Section 404 of the Sarbanes-Oxley SOX Act of 2002 requires management to report on the effectiveness of the internal controls over financial reporting and auditors to attest to the validity of these reports. However in response to SEC registrants argument that high implementation costs are not commensurate with its perceived benefits . Ongeva et al. 2007 Congress recently

• Lịch sử - Văn hoá
• Internal control weaknesses
• Information quality
• Firm level account specific weaknesses
• Hereafter ICW
• ICW is associated