ABSTRACT

This study investigates the impact of material internal control weaknesses on corporate employment decisions. We find that, on average, ineffective internal control is significantly related to lower efficiency in employment decisions. We also find that firms with material internal control weaknesses are associated with both over-investment and under-investment in labour. Further analysis suggests that the negative impact of internal control weaknesses on employment decisions is predominantly driven by more severe types of weakness that have a pervasive effect on internal reporting and those related to core accounts. Moreover, our change analysis shows that the remediation of material weaknesses contributes to an improvement in labour investment efficiency. Finally, consistent with the effective monitoring role of high-skilled employees, our subsample analysis indicates that the negative impact of internal control weaknesses on labour investment efficiency is mitigated in firms with high reliance on human capital. Our findings are robust to various sensitivity checks including propensity score matching, entropy balancing, removal of observations during the financial crisis, various measures for the efficiency of investment in labour, and the adjustment for employing residuals as outcome variables. Overall, our study contributes to the ongoing debate on the net benefits of SOX 404 by highlighting the significant value of internal control systems to efficient human capital investment and provides timely implications for managers and regulators.

摘要

本研究调查了重大内部控制缺陷对企业雇佣决策的影响。我们发现，平均而言，无效的内部控制与雇佣决策的低效率显着相关。我们还发现，存在重大内部控制缺陷的公司与劳动力投资过度和投资不足有关。进一步的分析表明，内部控制缺陷对雇用决策的负面影响主要是由更严重的缺陷类型驱动的，这些缺陷对内部报告和与核心账户相关的报告具有普遍影响。此外，我们的变化分析表明，物质弱点的补救有助于提高劳动力投资效率。最后，与高技能员工的有效监督作用一致，我们的子样本分析表明，内部控制缺陷对劳动力投资效率的负面影响在高度依赖人力资本的公司中得到缓解。我们的研究结果对各种敏感性检查都是稳健的，包括倾向得分匹配、熵平衡、金融危机期间的观测值去除、劳动力投资效率的各种措施以及使用残差作为结果变量的调整。总的来说，我们的研究强调了内部控制系统对有效人力资本投资的重要价值，并为管理者和监管者提供了及时的影响，从而促进了关于 SOX 404 净收益的持续辩论。