The impact of internal control weaknesses on firms' cash policies

Abstract

Data availability: All data is available from public sources identified in the text. 1.Variable Descriptions: ΔCASH = The change in cash (∆Cash /Assets); WEAK (302/404) = 1 if Audit Analytics reports Section302 (or Section 404) ICW any of the years t, t-1, or t-2, = 0 otherwise; CFO = (Operating Cash Flow)/Assets; LMVE = Log (Market Value of Equity); LAGE = Log(firm age); TOBIN = (Tobin's Q), defined as (Market Value of Equity + Liabilities) / (Book Value of Equity + Liabilities); ILLIQ = (Amihud Illiquidity), defined as annual average of daily ratio of absolute value of daily CRSP stock returns to dollar volume: |Ret|/(dollar volume); INVEST = (Capital Expenditures + Research & Development Costs) / Assets; MTB = Market-to-book ratio; STDRET = Standard deviation of daily CRSP stock returns; LEV = Total Liabilities/ Total Assets; LOSS = 1 if ROA < 0, = 0 otherwise; LSEGM = Natural log of the number of segments (Compustat); FOREIGN = 1 if a firm reports income from foreign operations, = 0 otherwise; MA = 1 if Compustat reports a merger or acquisition during the year, = 0 otherwise; RESTRUCTURE = 1 if Compustat reports any restructuring charges during the year, = 0 otherwise; ΔEARN = annual change in firms' earnings, deflated by prior period total assets; ∆ALTMAN = Percentage change in a firm's Altman Z-Score; B5 = 1 if a firm is a Big N firm,= 0 otherwise; CASH = Firm's Cash balance (CHE) deflated by prior period assets; ∆SALE = Annual change in firms sales deflated by prior period assets; INVT = Inventory / Assets; AR = (Accounts Receivable) / Assets; RESTATE = 1 if a firm had a restatement indicated in Audit Analytics, = 0 otherwise.