The effect of internal control environment on the value relevance of earnings
- Authors
- Lee, H.-A.
- Issue Date
- 2019
- Publisher
- LLC CPC Business Perspectives
- Keywords
- Financial reporting; Internal control personnel; Internal control system; Sarbanes-Oxley Act; Work experience
- Citation
- Investment Management and Financial Innovations, v.16, no.2, pp.182 - 194
- Journal Title
- Investment Management and Financial Innovations
- Volume
- 16
- Number
- 2
- Start Page
- 182
- End Page
- 194
- URI
- https://scholarworks.bwise.kr/gachon/handle/2020.sw.gachon/2704
- DOI
- 10.21511/imfi.16(2).2019.16
- ISSN
- 1810-4967
- Abstract
- This study examines whether a suitable control environment increases the value relevance of earnings by providing greater assurance on the reliability of financial reporting. Specifically, the level of suitable control environment is assessed by considering the quantity and quality of IC personnel, which are closely related to the personnel integrity/ethical values, competence, and authority/responsibility. Using a sample of 1,834 firm-year observations of Korean listed companies covering 2005–2010, the author finds that earnings are more value relevant when the increase in the average work experience of IC personnel is greater. However, no evidence is found that the value relevance of earnings is positively associated with the increase in the proportion of IC personnel. The findings suggest that a suitable control environment, established by deployment of qualified IC personnel with more work experience, improves the IC effectiveness and, thus, provides greater assurance on the reliability of financial reporting to market investors. © Hyun-Ah Lee, 2019
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