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

Mei Cheng, Dan Dhaliwal and Yuan Zhang

Journal of Accounting and Economics, 2013, vol. 56, issue 1, 1-18

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.

Keywords: Effectiveness of internal control over financial reporting; Investment efficiency; Disclosure (search for similar items in EconPapers)
JEL-codes: G31 G38 M41 M48 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (161)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:56:y:2013:i:1:p:1-18

DOI: 10.1016/j.jacceco.2013.03.001

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