IT Control Weakness and Company Financial Health

Kuhn, Randy; Mueller, John M.

doi:10.2139/ssrn.1304125

Cited by 2 publications

(8 citation statements)

References 22 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…As noted by prior IT internal control weakness research (Ge and McVay, 2005;Carter et al, 2012;Weill and Ross, 2005;Ahuja et al, 2009), evidence shows a distinct and significant correlation between reported material IT weaknesses and poor financial performance and health relative to peer firms/competitors. Klamm and Watson (2009) found that firms with weak IT controls report more financial report misstatements than firms without IT-related weaknesses.…”

Section: Development Of Hypothesesmentioning

confidence: 69%

“…Are IT weaknesses treated any differently? In the Ahuja et al (2009) study firms reporting at least one IT weakness experienced a statistically significant worse financial condition and worse performance than a comparable set of firms reporting only non-IT weaknesses: 24 percent lower current ratio (current assets over current liabilities), 17 percent lower debt ratio (opposite expectation), 56 percent lower ROA, and $0.40 lower EPS. Given the pervasiveness of technology in today's business environment and the poorer financial position/performance of IT weakness firms identified in recent research, the market is expected to evaluate IT weaknesses differently:…”

Section: Development Of Hypothesesmentioning

confidence: 82%

“…Klamm and Watson (2009) found that firms with weak IT controls report more financial report misstatements than firms without IT-related weaknesses. In the Ahuja et al (2009) study, firms reporting at least one IT weakness experienced a statistically significant worse financial condition and worse performance than a comparable set of firms reporting no internal control weaknesses: 49 percent lower current ratio (current assets over current liabilities), 25 percent higher debt ratio (total debt over total assets), 90 percent lower return on assets (ROA), and $1.23 lower earnings per share (EPS). Therefore, it is hypothesized that decisions by the investing community reflect awareness and effective information processing of this phenomena.…”

Section: Development Of Hypothesesmentioning

confidence: 99%

“…However, very little research to date explored the connection of IT governance and technology-based control weaknesses to overall firm performance, health, and shareholder value. Some related studies of note in the IS discipline include the Weill and Ross (2005) self-reported survey of IT governance design and firm profitability, asset utilization, and growth; the Canada et al (2009) analysis of the effects of IT control weaknesses on the 967 IT control weaknesses and market value fees charged by public accounting firms to their clients; the Ahuja et al (2009) examination of the performance of IT governance efforts and key financial performance and health indicators (i.e. common accounting ratios); the Elbardan et al (2015) development of a conceptual framework for how the internal audit function can respond to the implementation of ERP systems in light of increased corporate governance.…”

Section: Development Of Hypothesesmentioning

confidence: 99%

See 3 more Smart Citations

IT internal control weaknesses and the market value of firms

Kuhn¹,

Morris

2017

JEIM

View full text Add to dashboard Cite

Purpose With computer technology fast becoming the engine that drives productivity, IT systems have become more pervasive in the daily operations of many businesses. Large, as well as small, businesses in the USA now rely heavily on IT systems to function effectively and efficiently. However, past studies have shown CEOs do not always understand how reliant their business is on IT systems. To the authors’ knowledge, no research has not yet examined if financial markets understand how IT affects the performance of businesses. The paper aims to discuss these issues. Design/methodology/approach In this study, the authors utilize the event study method to examine how financial markets interpret weaknesses in businesses IT systems. The authors examine this in the context of the Sarbanes-Oxley Act – Section 404 requirements and utilize the internal reporting requirement in the annual financial statement filing with the Securities Exchange Commission as a proxy to evaluate how the financial markets interpret IT weaknesses. Findings Using an event study, the authors show that the market does not necessarily understand and respond to the effects of IT weaknesses on overall financial performance of firms and thus challenge the efficient market hypothesis theory. Originality/value A second contribution is methodological in nature. IS researchers thus far have been using limited market benchmarks, statistical tests, and event windows in their respective event studies of market performance. This study shows shortcomings of that approach and the necessity of expanding usage of available event analysis tools. The authors show that using more than one market benchmark and statistical test across multiple time frames uncovers the effects that using a single benchmark and test over a single window would have overlooked.

show abstract

Section: Development Of Hypothesesmentioning

confidence: 69%

Section: Development Of Hypothesesmentioning

confidence: 82%

Section: Development Of Hypothesesmentioning

confidence: 99%

Section: Development Of Hypothesesmentioning

confidence: 99%

See 2 more Smart Citations

IT internal control weaknesses and the market value of firms

Kuhn¹,

Morris

2017

JEIM

View full text Add to dashboard Cite

show abstract

“…(Ahuja and so on, 2012 & Kuhn and so on,2013). [5,6] Domestic scholar, Tian Gaoliang (2011), Chi Guohua (2012), Yang Xiulling (2013)obtained the same conclusion through empirical test. [7,8,9] Wang Lihua and so on (2016) took 2012-2014 a-share listed company of Shanghai Stock Market as the research sample and studied The influence of internal control information disclosure on the operating performance of listed companies under compulsory disclosure, then they found that listed companies disclosing internal control defects have poor operating performance after disclosing internal control information.…”

Section: Disclosure Of Internal Control Defect and Enterprise Valuementioning

confidence: 83%

Does Disclosure of Internal Control Deficiencies and its Repair Contribute to the Promotion of Enterprise Value?

Liu¹

2018

Proceedings of the 2018 International Conference on Education Reform and Management Science (ERMS 2018)

View full text Add to dashboard Cite

The internal control of listed companies may have defects in the process of operation, and Information disclosure is the process of information transformation and transmission among different interest groups, or it can be understood as the process of information reprocessing and value appreciation. So the research on the disclosure of internal control deficiencies and repair can promote the construction of enterprise internal control system and disclosure of high quality internal control information. Thus this paper takes A-share listed companies in Shanghai and Shenzhen stock markets as the research object, which disclose internal control self-assessment report in the 2015-2016 years, using double T test and regression analysis to verify the disclosure of internal control deficiencies and repair will enhance the value of the company or not. The results show that investors are more concerned about the opinions of the third parties rather than the information disclosed by the enterprises, thus affecting the value of the enterprise. And find that the restoration of internal control deficiencies, especially major / important defects repair, which can't enhance the value of the enterprise, and will reduce the value of enterprises in the year. Due to the endogeneity of enterprise internal control and the delay of signal, repair defects in long-term economic impact on the enterprise value is more worthy of attention.

show abstract

IT Control Weakness and Company Financial Health

Cited by 2 publications

References 22 publications

IT internal control weaknesses and the market value of firms

IT internal control weaknesses and the market value of firms

Does Disclosure of Internal Control Deficiencies and its Repair Contribute to the Promotion of Enterprise Value?

Contact Info

Product

Resources

About