Institutional Ownership, Internal Control Material Weakness and Firm Performance

47 Pages Posted: 20 Nov 2007

See all articles by Alex P. Tang

Alex P. Tang

Morgan State University

Li Xu

Washington State University, Vancouver

Date Written: November 1, 2007

Abstract

We examine whether a firm's composition of its institutional ownership affects its likelihood of disclosing material weaknesses in its internal control system under SOX 302 and 404 and, hence, its post-disclosure firm performance. The findings indicate that dedicated institutional investors reduce the likelihood of material weaknesses disclosures while transient institutional investors exacerbate the likelihood of material weaknesses disclosures. Firms identified with material weaknesses in internal control have worse operating performance and stock returns in the post-disclosure period than controlling firms, however, the particular types of institutional investors associated with internal control material weakness disclosures have no net impact on post-disclosure firms' performance.

Keywords: Institutional Ownership, Internal Control, Firm Performance

JEL Classification: G34, G38, G14, M41, M44, E44

Suggested Citation

Tang, Alex P. and Xu, Li, Institutional Ownership, Internal Control Material Weakness and Firm Performance (November 1, 2007). Available at SSRN: https://ssrn.com/abstract=1031270 or http://dx.doi.org/10.2139/ssrn.1031270

Alex P. Tang

Morgan State University ( email )

1700 E. Cold Spring Ln
Baltimore, MD 21251
United States

Li Xu (Contact Author)

Washington State University, Vancouver ( email )

14204 NE Salmon Creek Avenue
Vancouver, WA WA 98686-9600
United States

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