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The impact of ineffective internal control on the value relevance of accounting information

Author

Listed:
  • Nan Hu
  • Baolei Qi
  • Gaoliang Tian
  • Lee Yao
  • Zhen Zeng

Abstract

This paper investigates the value relevance of accounting information in the presence of ineffective internal control (IIC). Based on Ohlson's valuation model, this paper first documents that IIC can directly affect a firm's market value after control cost of capital, corporate governance, and other, value-relevant variables. Second, this paper finds that the value relevance of earnings and book value in determining a firm's market value are significantly reduced. Collectively, the results of this paper indicate that the effectiveness of internal controls can directly affect a firm's market value and the value relevance of accounting information.

Suggested Citation

  • Nan Hu & Baolei Qi & Gaoliang Tian & Lee Yao & Zhen Zeng, 2013. "The impact of ineffective internal control on the value relevance of accounting information," Asia-Pacific Journal of Accounting & Economics, Taylor & Francis Journals, vol. 20(3), pages 334-347, September.
    • Handle: RePEc:taf:raaexx:v:20:y:2013:i:3:p:334-347
    DOI: 10.1080/16081625.2013.765026
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    Cited by:

    1. Graham Gal & Orhan Akisik, 2020. "The impact of internal control, external assurance, and integrated reports on market value," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(3), pages 1227-1240, May.
    2. Puji Rahayu Setyaningsih & Nengzih Nengzih, 2020. "Internal Control, Organizational Culture, and Quality of Information Accounting to Prevent Fraud: Case Study From Indonesia's Agriculture Industry," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(4), pages 316-328, July.
    3. Dhasmana, Samriddhi & Goel, Sandeep, 2023. "The insidious hyperreality in financial markets: An integrative review with evidence from the Indian financial market," International Review of Financial Analysis, Elsevier, vol. 90(C).
    4. Mohammed AL-Sharairi & Atallah Al-Hosban & Hussan Thnaibat, 2018. "The impact of the Risks of the Input of Accounting Information Systems on Managerial Control, Accounting Control and Internal Control in Commercial Banks in Jordan," International Journal of Business and Management, Canadian Center of Science and Education, vol. 13(2), pages 1-96, January.
    5. Chalmers, Keryn & Hay, David & Khlif, Hichem, 2019. "Internal control in accounting research: A review," Journal of Accounting Literature, Elsevier, vol. 42(C), pages 80-103.

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