Board Independence and Internal Control Weakness: Evidence from SOX 404 Disclosures

Chen, Yangyang and Knechen, Robert W and Marisetty, Vijaya B. and Truong, Cameron and Veeraraghavan, Madhu (2014) Board Independence and Internal Control Weakness: Evidence from SOX 404 Disclosures. TAPMI, Manipal.

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Abstract

In this paper we investigate whether board independence has an impact on the incidence of internal control weakness. Using a comprehensive sample of 11,226 firm-year observations spanning the period 2004-2012, we establish several new results. First, we show that board independence has a significant negative relation with the incidence of internal control weakness. Second, we find that of the four committees investigated, the independence of the audit committee has a significant negative relation with the incidence of internal control weakness. Third, audit committee independence is more effective for account-specific weaknesses and the compensation committee independence is more effective for company level weaknesses. Fourth, board and compensation committee independence are negative and significant only for the subsample of firms with unitary leadership. Our findings are robust to endogenous effects and selection bias.

Item Type:	TAPMI Working Papers
Uncontrolled Keywords:	Internal control weakness; Board independence; Compensation committee; Audit Committee; Unitary versus Dual leadership; SOX 404
Subjects:	Finance Finance > Accounting
Divisions:	Finance and Strategy
Depositing User:	Ms. Vanitha K
Date Deposited:	14 Nov 2018 08:51
Last Modified:	14 Nov 2018 08:51
URI:	http://tapmi.informaticsglobal.com/id/eprint/261

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