{"title":"内部治理和内部控制的重大弱点","authors":"Mai Dao, Trung Pham, Hongkang Xu","doi":"10.1111/corg.12548","DOIUrl":null,"url":null,"abstract":"<div>\n \n \n <section>\n \n <h3> Research Question/Issue</h3>\n \n <p>The objective of this study is to examine whether the effectiveness of internal governance is associated with internal control material weaknesses. We employ the concept of internal governance as the checks-and-balances mechanism that subordinate executives apply to the chief executive officer (CEO). We predict that with long horizons and long-term interests aligned with firms' long-term growth, subordinate executives may have the incentive to support a high-quality internal control system, which is an important factor contributing to firms' long-term success.</p>\n </section>\n \n <section>\n \n <h3> Research Findings/Insights</h3>\n \n <p>Using data on CEOs' and other highest paid executives' age and compensation to measure the effectiveness of internal governance, we empirically find consistent evidence that internal governance effectiveness is associated with higher internal control quality. In particular, we find that effective internal governance is related to a lower likelihood of firms reporting internal control material weaknesses, fewer material weaknesses in internal control (ICMWs), a lower chance of firms disclosing internal control weaknesses for multiple years, and a lower probability of firms reporting entity-level and/or account-level material weaknesses in internal control. We also show that among the two factors forming the internal governance measure, only subordinate executives' horizon is associated with the probability of firms disclosing ICMWs. Our further analysis reveals that the probability of reporting ICMWs is lower for growth firms with effective internal governance.</p>\n </section>\n \n <section>\n \n <h3> Theoretical/Academic Implications</h3>\n \n <p>Our findings contribute to the literature on internal governance and internal control quality. The impact of the checks-and-balances mechanism inherent in internal governance on firms' investment in the internal control system and thus the probability of disclosing ICMWs has not received sufficient attention from accounting researchers. While prior studies focus on individual members of the management team, our finding implies that the quality of the internal control system is a result of the joint effort of the whole management team. Unlike the extant literature that captures only certain aspects of reporting quality and information disclosures, our study emphasizes the role of the horizon dimension of internal governance in enhancing the reliability of financial reporting (measured as the quality of the internal control system).</p>\n </section>\n \n <section>\n \n <h3> Practitioner/Policy Implications</h3>\n \n <p>Our results shed light on the important role of subordinate executives in monitoring CEOs' short-term interests.</p>\n </section>\n </div>","PeriodicalId":48209,"journal":{"name":"Corporate Governance-An International Review","volume":"32 3","pages":"474-499"},"PeriodicalIF":4.6000,"publicationDate":"2023-07-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":"{\"title\":\"Internal governance and internal control material weaknesses\",\"authors\":\"Mai Dao, Trung Pham, Hongkang Xu\",\"doi\":\"10.1111/corg.12548\",\"DOIUrl\":null,\"url\":null,\"abstract\":\"<div>\\n \\n \\n <section>\\n \\n <h3> Research Question/Issue</h3>\\n \\n <p>The objective of this study is to examine whether the effectiveness of internal governance is associated with internal control material weaknesses. We employ the concept of internal governance as the checks-and-balances mechanism that subordinate executives apply to the chief executive officer (CEO). We predict that with long horizons and long-term interests aligned with firms' long-term growth, subordinate executives may have the incentive to support a high-quality internal control system, which is an important factor contributing to firms' long-term success.</p>\\n </section>\\n \\n <section>\\n \\n <h3> Research Findings/Insights</h3>\\n \\n <p>Using data on CEOs' and other highest paid executives' age and compensation to measure the effectiveness of internal governance, we empirically find consistent evidence that internal governance effectiveness is associated with higher internal control quality. In particular, we find that effective internal governance is related to a lower likelihood of firms reporting internal control material weaknesses, fewer material weaknesses in internal control (ICMWs), a lower chance of firms disclosing internal control weaknesses for multiple years, and a lower probability of firms reporting entity-level and/or account-level material weaknesses in internal control. We also show that among the two factors forming the internal governance measure, only subordinate executives' horizon is associated with the probability of firms disclosing ICMWs. Our further analysis reveals that the probability of reporting ICMWs is lower for growth firms with effective internal governance.</p>\\n </section>\\n \\n <section>\\n \\n <h3> Theoretical/Academic Implications</h3>\\n \\n <p>Our findings contribute to the literature on internal governance and internal control quality. The impact of the checks-and-balances mechanism inherent in internal governance on firms' investment in the internal control system and thus the probability of disclosing ICMWs has not received sufficient attention from accounting researchers. While prior studies focus on individual members of the management team, our finding implies that the quality of the internal control system is a result of the joint effort of the whole management team. Unlike the extant literature that captures only certain aspects of reporting quality and information disclosures, our study emphasizes the role of the horizon dimension of internal governance in enhancing the reliability of financial reporting (measured as the quality of the internal control system).</p>\\n </section>\\n \\n <section>\\n \\n <h3> Practitioner/Policy Implications</h3>\\n \\n <p>Our results shed light on the important role of subordinate executives in monitoring CEOs' short-term interests.</p>\\n </section>\\n </div>\",\"PeriodicalId\":48209,\"journal\":{\"name\":\"Corporate Governance-An International Review\",\"volume\":\"32 3\",\"pages\":\"474-499\"},\"PeriodicalIF\":4.6000,\"publicationDate\":\"2023-07-12\",\"publicationTypes\":\"Journal Article\",\"fieldsOfStudy\":null,\"isOpenAccess\":false,\"openAccessPdf\":\"\",\"citationCount\":\"0\",\"resultStr\":null,\"platform\":\"Semanticscholar\",\"paperid\":null,\"PeriodicalName\":\"Corporate Governance-An International Review\",\"FirstCategoryId\":\"91\",\"ListUrlMain\":\"https://onlinelibrary.wiley.com/doi/10.1111/corg.12548\",\"RegionNum\":3,\"RegionCategory\":\"管理学\",\"ArticlePicture\":[],\"TitleCN\":null,\"AbstractTextCN\":null,\"PMCID\":null,\"EPubDate\":\"\",\"PubModel\":\"\",\"JCR\":\"Q1\",\"JCRName\":\"BUSINESS\",\"Score\":null,\"Total\":0}","platform":"Semanticscholar","paperid":null,"PeriodicalName":"Corporate Governance-An International Review","FirstCategoryId":"91","ListUrlMain":"https://onlinelibrary.wiley.com/doi/10.1111/corg.12548","RegionNum":3,"RegionCategory":"管理学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS","Score":null,"Total":0}
Internal governance and internal control material weaknesses
Research Question/Issue
The objective of this study is to examine whether the effectiveness of internal governance is associated with internal control material weaknesses. We employ the concept of internal governance as the checks-and-balances mechanism that subordinate executives apply to the chief executive officer (CEO). We predict that with long horizons and long-term interests aligned with firms' long-term growth, subordinate executives may have the incentive to support a high-quality internal control system, which is an important factor contributing to firms' long-term success.
Research Findings/Insights
Using data on CEOs' and other highest paid executives' age and compensation to measure the effectiveness of internal governance, we empirically find consistent evidence that internal governance effectiveness is associated with higher internal control quality. In particular, we find that effective internal governance is related to a lower likelihood of firms reporting internal control material weaknesses, fewer material weaknesses in internal control (ICMWs), a lower chance of firms disclosing internal control weaknesses for multiple years, and a lower probability of firms reporting entity-level and/or account-level material weaknesses in internal control. We also show that among the two factors forming the internal governance measure, only subordinate executives' horizon is associated with the probability of firms disclosing ICMWs. Our further analysis reveals that the probability of reporting ICMWs is lower for growth firms with effective internal governance.
Theoretical/Academic Implications
Our findings contribute to the literature on internal governance and internal control quality. The impact of the checks-and-balances mechanism inherent in internal governance on firms' investment in the internal control system and thus the probability of disclosing ICMWs has not received sufficient attention from accounting researchers. While prior studies focus on individual members of the management team, our finding implies that the quality of the internal control system is a result of the joint effort of the whole management team. Unlike the extant literature that captures only certain aspects of reporting quality and information disclosures, our study emphasizes the role of the horizon dimension of internal governance in enhancing the reliability of financial reporting (measured as the quality of the internal control system).
Practitioner/Policy Implications
Our results shed light on the important role of subordinate executives in monitoring CEOs' short-term interests.
期刊介绍:
The mission of Corporate Governance: An International Review is to publish cutting-edge international business research on the phenomena of comparative corporate governance throughout the global economy. Our ultimate goal is a rigorous and relevant global theory of corporate governance. We define corporate governance broadly as the exercise of power over corporate entities so as to increase the value provided to the organization"s various stakeholders, as well as making those stakeholders accountable for acting responsibly with regard to the protection, generation, and distribution of wealth invested in the firm. Because of this broad conceptualization, a wide variety of academic disciplines can contribute to our understanding.