Faculty Publications

Title

The impact of culture on internal control weaknesses: Evidence from firms that cross-list in the U.S.

SelectedWorks Author Profiles:

Maria T. Caban-Garcia

Document Type

Article

Publication Date

2017

ISSN

1542-6297

Abstract

This study addresses the impact of culture on the likelihood of U.S. foreign issuers reporting material weaknesses in internal control over financial reporting (MWICs). Specifically, we explore whether Hofstede’s (1980, 2001) country-level dimensions of power distance, individualism, uncertainty avoidance, masculinity, and long-term orientation explain the likelihood of U.S. foreign issuers reporting internal control deficiencies under Section 302 of the Sarbanes-Oxley Act (SOX). To assess whether home country guidance on internal control reporting influences U.S. foreign issuers detecting and reporting MWICs, we identify and control for the adoption of internal control guidance in foreign jurisdictions. Our results show that firms from countries with a high power distance and long-term orientation are more likely to report MWICs. In addition, we find that firms from countries that implement internal control guidance are less likely to report MWICs, suggesting that the effectiveness of U.S. foreign issuers’ internal control over financial reporting is influenced by their home countries’ regulation and oversight. These results are generally robust to a number of additional sensitivity tests.

Comments

Citation only. Full-text article is available through licensed access provided by the publisher. Members of the USF System may access the full-text of the article through the authenticated link provided.

Publisher

American Accounting Association

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