Physical Sciences and Mathematics Commons^™

The Impact Of Ineffective Internal Control On The Value Relevance Of Accounting Information, Nan Hu, Baolei Qi, Gaoliang Tian, Lee Yao, Zhen Zeng

Research Collection School Of Computing and Information Systems

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.