Internal control material weakness opinions and the market's reaction to securities fraud litigation announcements

Yu Cheng Tsai; Hua Wei Huang

doi:10.1016/j.frl.2020.101833

Internal control material weakness opinions and the market's reaction to securities fraud litigation announcements

Research output: Contribution to journal › Article › peer-review

Abstract

Using 465 firm-year observations of publicly litigated firms in the U.S. from 2000 to 2018, this study finds that declines in stock price on securities fraud litigation announcement dates are significantly more severe for publicly litigated firms receiving U.S. SOX 404 internal control material weakness (ICMW) opinions. Also, the stock price declines are more prominent for publicly litigated firms with entity-level ICMW than for those with account-level ICMW. The aforementioned findings show that ICMW opinions have predictive value for public investors and capital market participants.

Original language	English
Article number	101833
Journal	Finance Research Letters
DOIs	https://doi.org/10.1016/j.frl.2020.101833
Publication status	Accepted/In press - 2020

All Science Journal Classification (ASJC) codes

Finance

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10.1016/j.frl.2020.101833

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@article{5bcd6104e856436eaac9f14a53afe0d8,

title = "Internal control material weakness opinions and the market's reaction to securities fraud litigation announcements",

abstract = "Using 465 firm-year observations of publicly litigated firms in the U.S. from 2000 to 2018, this study finds that declines in stock price on securities fraud litigation announcement dates are significantly more severe for publicly litigated firms receiving U.S. SOX 404 internal control material weakness (ICMW) opinions. Also, the stock price declines are more prominent for publicly litigated firms with entity-level ICMW than for those with account-level ICMW. The aforementioned findings show that ICMW opinions have predictive value for public investors and capital market participants.",

author = "Tsai, {Yu Cheng} and Huang, {Hua Wei}",

note = "Funding Information: Hua-Wei Huang gratefully acknowledges the financial support of the Ministry of Science and Technology, Taiwan, ROC (Project No. MOST 107-2410-H-006 -017 -MY3). This research is partially supported by the “Higher Education SPROUT Project” and “Center for Innovative FinTech Business Models” of National Cheng Kung University (NCKU), sponsored by the Ministry of Education, Taiwan, ROC. ",

year = "2020",

doi = "10.1016/j.frl.2020.101833",

language = "English",

journal = "Finance Research Letters",

issn = "1544-6123",

publisher = "Elsevier BV",

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AU - Tsai, Yu Cheng

AU - Huang, Hua Wei

N1 - Funding Information: Hua-Wei Huang gratefully acknowledges the financial support of the Ministry of Science and Technology, Taiwan, ROC (Project No. MOST 107-2410-H-006 -017 -MY3). This research is partially supported by the “Higher Education SPROUT Project” and “Center for Innovative FinTech Business Models” of National Cheng Kung University (NCKU), sponsored by the Ministry of Education, Taiwan, ROC.

PY - 2020

Y1 - 2020

N2 - Using 465 firm-year observations of publicly litigated firms in the U.S. from 2000 to 2018, this study finds that declines in stock price on securities fraud litigation announcement dates are significantly more severe for publicly litigated firms receiving U.S. SOX 404 internal control material weakness (ICMW) opinions. Also, the stock price declines are more prominent for publicly litigated firms with entity-level ICMW than for those with account-level ICMW. The aforementioned findings show that ICMW opinions have predictive value for public investors and capital market participants.

AB - Using 465 firm-year observations of publicly litigated firms in the U.S. from 2000 to 2018, this study finds that declines in stock price on securities fraud litigation announcement dates are significantly more severe for publicly litigated firms receiving U.S. SOX 404 internal control material weakness (ICMW) opinions. Also, the stock price declines are more prominent for publicly litigated firms with entity-level ICMW than for those with account-level ICMW. The aforementioned findings show that ICMW opinions have predictive value for public investors and capital market participants.

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