THE IMPACT OF INTERNAL CONTROL ON FIRM’S RISK AND PERFORMANCE

Yu-En Lin (), Hsiang-Hsuan Chih (), Chia-Hsien Tang () and Tai-Hsun Huang ()
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Yu-En Lin: Business School, Jilin University, 2699 Qian Jin Street, Changchun 130012, China
Hsiang-Hsuan Chih: Department of Finance, National Dong Hwa University, Taiwan
Chia-Hsien Tang: Department of Banking and Finance, Tamkang University, Taiwan
Tai-Hsun Huang: Department of Banking and Finance, Tamkang University, Taiwan

Annals of Financial Economics (AFE), 2015, vol. 10, issue 02, 1-18

Abstract: Based on the annual data of internal control weakness during 2008–2012, this paper empirically analyzes Chinese listed firms’ internal control weakness and its influence on the risks and performance of banks. The aim of this paper is to examine whether the internal control weakness have long-term information content or not. In addition, this paper examines the effect of interaction term of internal control weakness and managers’ holdings on firm’s performance and risk and improves the firm’s operation. Our results are summarized as follows: First, the disclosure of internal weakness would decrease operation risk slightly but has severe effect on future performance. Second, the blockhold would decrease the operation performance for firm disclosing internal control weakness. Finally, the increase of mangers’ holdings would decrease the operating risk, and does not decrease the operating performance. These results argue that if managers increase their stock holdings after firms disclosing the internal control weakness, they would improve the firm’s operation condition and risk management.

Keywords: Internal control weakness; operation risk; market risk (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1142/S2010495215500128

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