Internal control and internal capital allocation: evidence from internal capital markets of multi-segment firms

• 成果类型: Article
• 署名作者: D'Mello, Ranjan; Gao, Xinghua; Jia, Yonghong
• 署名单位: Wayne State University; Governors State University; Iowa State University
• 刊物名称: REVIEW OF ACCOUNTING STUDIES
• ISSN/ISSBN: 1380-6653
• DOI: 10.1007/s11142-016-9377-8
• 发表日期: 2017
• 页码: 251-287
• 关键词: sarbanes-oxley act; DIVERSIFICATION DISCOUNT; control deficiencies; cash flow; remediation; constraints; governance; QUALITY; COSTS

摘要

We investigate the impact of internal control over financial reporting on management decisions in directing corporate resources to alternative investment projects in multi-segment firms. Results from cross-sectional and inter-temporal analyses indicate that internal control weaknesses (ICWs) are associated with distortionary internal capital allocations. The adverse impact on internal capital markets is more pronounced for firms with company-level ICWs. Our analyses also show that firms with weak existing governance mechanisms benefit more from maintaining effective internal control. We further document that the negative impact of ICWs on firms' internal capital transfers manifests in a lower excess value of diversification.