Internal Control Personnel’s Experience, Internal Control Weaknesses, and ESG Rating

Ja Eun Koo and Eun Sun Ki
Additional contact information
Ja Eun Koo: Division of Business Administration, The University of Suwon, Gyeonggi 18323, Korea
Eun Sun Ki: Division of Business Administration & Accounting, Kangwon National University, Chuncheon 24341, Korea

Sustainability, 2020, vol. 12, issue 20, 1-16

Abstract: Effective internal control is expected to have a positive effect on Environmental, Social, and Governance (ESG) ratings, which are an indicator of corporate sustainability, as it ensures improvements in efficiency and effectiveness in operations, reliable reports, and compliance with applicable laws and regulations. However, no matter how well an internal control system is designed, internal control quality deteriorates if internal control (IC) personnel do not understand the firm’s business or lack accounting experience. This study first explores the relationship between ESG ratings and internal control weaknesses (ICWs). We then examine two types of career experience of IC personnel—length of service and accounting experience—and their effect on ICWs. We conduct logit regression analyses using the data of 1876 non-financial listed firms in Korea. The results show that ICW firms have low ESG ratings. We also find that the accounting experience of IC personnel is more closely related to ICWs than the length of service. This implies that the accounting expertise of IC personnel may have a greater effect on internal control quality than the understanding of a firm’s business. Overall, our findings provide evidence that firms must have IC personnel with sufficient accounting expertise for sustainable management.

Keywords: ESG ratings; internal control weakness; internal control personnel; career experience (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
https://www.mdpi.com/2071-1050/12/20/8645/pdf (application/pdf)
https://www.mdpi.com/2071-1050/12/20/8645/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:20:p:8645-:d:430997

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().