Does internal control over financial reporting really alleviate agency conflicts?

  • Baolei Qi
  • , Liuchuang Li
  • , Qing Zhou
  • , Jinghui Sun

Research output: Contribution to journalArticlepeer-review

21 Scopus citations

Abstract

This study investigates whether internal control over financial reporting (ICFR) alleviates the managerial expropriation of corporate resources. We do this by examining the potential effects of material weaknesses in internal control on the values of corporate cash holdings and capital expenditures. Our findings suggest that ICFR facilitates the scrutiny and discipline of capital markets and thus alleviates the agency problems. Our results support the premise that high financial reporting quality impairs managers’ abilities to use corporate resources in a self-serving manner.

Original languageEnglish
Pages (from-to)1101-1125
Number of pages25
JournalAccounting and Finance
Volume57
Issue number4
DOIs
StatePublished - Dec 2017

Keywords

  • Agency conflicts
  • Capital expenditures
  • Cash holdings
  • Internal control

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