Does Internal Control Over Financial Reporting Really Alleviate Agency Conflicts?

25 Pages Posted: 17 Dec 2017

See all articles by Baolei Qi

Baolei Qi

Xi'an Jiaotong University (XJTU) - School of Management

Liuchuang Li

Xi'an Jiaotong University (XJTU)

Qing Zhou

Department of Applied Finance and Actuarial Studies, Macquarie University

Jinghui Sun

Xi'an Jiaotong University (XJTU)

Date Written: December 2017

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.

Keywords: Agency conflicts, Capital expenditures, Cash holdings, Internal control

Suggested Citation

Qi, Baolei and Li, Liuchuang and Zhou, Qing and Sun, Jinghui, Does Internal Control Over Financial Reporting Really Alleviate Agency Conflicts? (December 2017). Accounting & Finance, Vol. 57, Issue 4, pp. 1101-1125, 2017. Available at SSRN: https://ssrn.com/abstract=3088257 or http://dx.doi.org/10.1111/acfi.12198

Baolei Qi (Contact Author)

Xi'an Jiaotong University (XJTU) - School of Management ( email )

28,Xianning West Road
Xi'an, Shaanxi 710049
China

Liuchuang Li

Xi'an Jiaotong University (XJTU) ( email )

26 Xianning W Rd.
Xi'an Jiao Tong University
Xi'an, Shaanxi 710049
China

Qing Zhou

Department of Applied Finance and Actuarial Studies, Macquarie University ( email )

Sydney, NSW
Australia

Jinghui Sun

Xi'an Jiaotong University (XJTU)

Shaanxi, 710049
China

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