Does investment efficiency improve after the disclosure of material weaknesses in internal control over financial reporting?

Mei Cheng, Dan Dhaliwal, Yuan Zhang

Research output: Contribution to journalArticlepeer-review

176 Scopus citations

Abstract

We provide more direct evidence on the causal relation between the quality of financial reporting and investment efficiency. We examine the investment behavior of a sample of firms that disclosed internal control weaknesses under the Sarbanes-Oxley Act. We find that prior to the disclosure, these firms under-invest (over-invest) when they are financially constrained (unconstrained). More importantly, we find that after the disclosure, these firms' investment efficiency improves significantly.

Original languageEnglish (US)
Pages (from-to)1-18
Number of pages18
JournalJournal of Accounting and Economics
Volume56
Issue number1
DOIs
StatePublished - Jul 2013

Keywords

  • Disclosure
  • Effectiveness of internal control over financial reporting
  • Investment efficiency

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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