Publication Type
Journal Article
Version
submittedVersion
Publication Date
3-2018
Abstract
We examine whether effective internal control over financial reporting has implications beyond that of financial reporting to firm operational efficiency. We predict and find that operational efficiency, derived from frontier analysis, is significantly lower among firms disclosing material weaknesses in internal control relative to firms with effective control. This result exists even in the years leading up to the disclosure of material weaknesses, but disappears after remediation of the internal control problems, suggesting that the remediation of material weaknesses improves operational efficiency. Overall, our study extends the literature on the reporting effects of strong versus weak internal control, and helps inform the debate over the costs versus benefits of the internal control reporting requirements under the Sarbanes-Oxley Act of 2002.
Keywords
Internal control, operational efficiency, Sarbanes-Oxley Act
Discipline
Accounting | Corporate Finance
Research Areas
Financial Performance Analysis
Publication
Contemporary Accounting Research
Volume
35
Issue
2
First Page
1102
Last Page
1139
ISSN
0823-9150
Identifier
10.1111/1911-3846.12409
Publisher
Canadian Academic Accounting Association
Citation
CHENG, Qiang; GOH, Beng Wee; and KIM, Jae Bum.
Internal Control and Operational Efficiency. (2018). Contemporary Accounting Research. 35, (2), 1102-1139.
Available at: https://ink.library.smu.edu.sg/soa_research/1210
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Additional URL
https://doi.org/10.1111/1911-3846.12409