Have the Costs of Sox Section 404(B) Changed Over Time? An Evaluation of the Internal and External Costs of Sox Section 404(B) Compliance

McCallen, Jennifer; Schmardebeck, Roy; Shipman, Jonathan E.; Whited, Robert Lowell

doi:10.2139/ssrn.3420787

Cited by 1 publication

(5 citation statements)

References 14 publications

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“…When using 28. We follow McCallen et al (2021) to generate predicted values of ICFR_AUDIT using the following regression model:…”

Section: Additional Analyses To Address Endogeneity Concernsmentioning

confidence: 99%

“…In this section, we take additional measures to address endogeneity concerns. First, to mitigate self‐selection concerns regarding which firms receive the treatment effect, we implement the regression discontinuity design in McCallen et al (2021) using public float greater than $50 million and public float greater than $75 million as instrumental variables 28 . We find the results (untabulated) are robust to using the bandwidth of $120 million (i.e., sample firms with public float between $15 million and $135 million) as in the main analyses of McCallen et al (2021).…”

Section: Additional Analysesmentioning

confidence: 99%

“…First, to mitigate self‐selection concerns regarding which firms receive the treatment effect, we implement the regression discontinuity design in McCallen et al (2021) using public float greater than $50 million and public float greater than $75 million as instrumental variables 28 . We find the results (untabulated) are robust to using the bandwidth of $120 million (i.e., sample firms with public float between $15 million and $135 million) as in the main analyses of McCallen et al (2021). For example, the coefficient on predicted ICFR_AUDIT is 0.026 (0.027) with p ‐value < 0.01 (0.10) when FIRM_EFF ( FIRM_EFF_ind ) is the dependent variable and when firm fixed effects are used 29 .…”

Section: Additional Analysesmentioning

confidence: 99%

“…Although we control for firm and year fixed effects, and find cross‐sectional variation consistent with our expectations, we conduct the following tests to further alleviate this concern 4 . First, we implement a regression discontinuity design following McCallen et al (2021) and use public float as an instrumental variable. We find the results are robust for different bandwidths.…”

Section: Introductionmentioning

confidence: 99%

“…28 28 We follow McCallen et al (2021) to generate predicted values of ICFR_AUDIT using the following regression model:

ICFR\_ AUDIT={\beta}_0+{\beta}_1 FLOAT 75+{\beta}_2 FLOAT 50+{\beta}_3 LNASSETS+{\beta}_4 LNMVE+{\beta}_5 SALE+{\beta}_6 LEV+{\beta}_7 RECT+{\beta}_8 LNSEG+ Year\ Fixed\ Effects+ Industry\ Fixed\ Effects+{\varepsilon}_{it}

with standard errors clustered by firms. We then use the predicted ICFR_AUDIT as the independent variable in equation ().…”

mentioning

confidence: 99%

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Does the Presence of an Internal Control Audit Affect Firm Operational Efficiency?*

Imdieke

Zhou

2023

Contemporary Accting Res

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This study examines whether auditors' evaluation and reporting of firms' internal control over financial reporting (ICFR) affects firm operational efficiency. Prior research indicates that the strength of internal controls is positively associated with economic benefits. However, notwithstanding the underlying strength of controls, whether the mere presence of an ICFR audit provides similar economic benefits is unclear. We predict and find that small firms with ICFR audits have significantly higher overall operational efficiency than small firms with only management ICFR reports, even after controlling for underlying internal control strength. We find this effect manifests through improvements in inventory turnover and innovation, and through increased relative product market share. Separately, we find ICFR audits are associated with lower efficiency in SG&A expenses. Cross‐sectional analyses indicate that the mechanism by which ICFR audits affect overall operational efficiency is through auditor detection of internal control problems and through knowledge spillover from auditing other highly efficient firms in the audit office's metropolitan statistical area. These results provide additional evidence on the ongoing cost and benefit debate of ICFR audits for small firms.

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“…When using 28. We follow McCallen et al (2021) to generate predicted values of ICFR_AUDIT using the following regression model:…”

Section: Additional Analyses To Address Endogeneity Concernsmentioning

confidence: 99%

Section: Additional Analysesmentioning

confidence: 99%

Section: Additional Analysesmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

“…28 28 We follow McCallen et al (2021) to generate predicted values of ICFR_AUDIT using the following regression model:

ICFR\_ AUDIT={\beta}_0+{\beta}_1 FLOAT 75+{\beta}_2 FLOAT 50+{\beta}_3 LNASSETS+{\beta}_4 LNMVE+{\beta}_5 SALE+{\beta}_6 LEV+{\beta}_7 RECT+{\beta}_8 LNSEG+ Year\ Fixed\ Effects+ Industry\ Fixed\ Effects+{\varepsilon}_{it}

with standard errors clustered by firms. We then use the predicted ICFR_AUDIT as the independent variable in equation ().…”

mentioning

confidence: 99%

See 3 more Smart Citations

Does the Presence of an Internal Control Audit Affect Firm Operational Efficiency?*

Imdieke

Zhou

2023

Contemporary Accting Res

View full text Add to dashboard Cite

show abstract

Have the Costs of Sox Section 404(B) Changed Over Time? An Evaluation of the Internal and External Costs of Sox Section 404(B) Compliance

Cited by 1 publication

References 14 publications

Does the Presence of an Internal Control Audit Affect Firm Operational Efficiency?*

Does the Presence of an Internal Control Audit Affect Firm Operational Efficiency?*

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