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Internal Control And Operational Efficiency, Qiang Cheng, Beng Wee Goh, Jae Bum Kim
Internal Control And Operational Efficiency, Qiang Cheng, Beng Wee Goh, Jae Bum Kim
Research Collection School Of Accountancy
In this study, we examine whether and how internal control over financial reporting affects firm operational efficiency. We find that operational efficiency, derived from the frontier analysis, is significantly lower among firms with material weaknesses in internal control relative to firms without such weaknesses. We document some evidence suggesting that effective internal control leads to greater operational efficiency through reducing the likelihood of misappropriation of corporate resources and through enhancing the quality of internal reports for decision making. We also document that smaller firms benefit more from having effective internal control in terms of operational efficiency. In addition, we find …