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Does internal control over financial reporting really alleviate agency conflicts?
Author(s) -
Qi Baolei,
Li Liuchuang,
Zhou Qing,
Sun Jinghui
Publication year - 2017
Publication title -
accounting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.645
H-Index - 49
eISSN - 1467-629X
pISSN - 0810-5391
DOI - 10.1111/acfi.12198
Subject(s) - accounting , business , control (management) , expropriation , agency (philosophy) , scrutiny , premise , capital market , finance , quality (philosophy) , tender offer , shareholder , corporate governance , economics , management , market economy , philosophy , linguistics , epistemology , political science , law
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.