CEO Characteristics and Internal Control Quality

Authors

  • Yu-Chen Lin,

  • Ying-Chieh Wang,

  • Jeng-Ren Chiou,

  • Hua-Wei Huang


Address for correspondence: Hua-Wei Huang, College of Management, National Cheng Kung University, No.1, Ta-Hsueh Road, Tainan 701, Taiwan. Tel: 886-6-275-7575 Ext. 53423; E-mail: hwawei7@yahoo.com.tw

Abstract

Manuscript Type

Empirical

Research Question/Issue

This study investigates the influence of CEO characteristics on internal control quality in the U.S.

Research Findings/Insights

Using a sample of 4,374 ExecuComp non-financial firms, we find that CEO entrenchment and age are significantly associated with a material internal control weakness disclosure (MW) under Sarbanes-Oxley Section 404 (SOX 404). Our results demonstrate that entrenchment and age may affect CEOs' behavior in response to the SOX 404 internal control requirements.

Theoretical/Academic Implications

This study provides empirical support for the influence of CEO characteristics on material internal control weakness. As a result, the effects of internal control mechanisms are likely to be decreased in firms with entrenched and younger CEOs, consistent with entrenchment theory.

Practitioner/Policy Implications

This study offers insights to regulators and lawmakers interested in the effects of CEO characteristics on internal control weakness. Importantly, it points out that CEO entrenchment and age are likely to affect the strength of internal control mechanisms.

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