Internal Control, Enterprise Risk Management, and Firm Performance

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dc.contributor.advisorGordon, Lawrence Aen_US
dc.contributor.authorTseng, Chih-Yangen_US
dc.contributor.departmentBusiness and Management: Accounting & Information Assuranceen_US
dc.contributor.publisherDigital Repository at the University of Marylanden_US
dc.contributor.publisherUniversity of Maryland (College Park, Md.)en_US
dc.date.accessioned2007-09-28T15:00:07Z
dc.date.available2007-09-28T15:00:07Z
dc.date.issued2007-08-02en_US
dc.description.abstractThis dissertation investigates two research questions arising from the regulation of internal controls required by Sarbanes-Oxley Act of 2002 (SOX). The first research question asks whether better internal controls can enhance firm performance? To address this question, the relation between market-value and internal control is estimated by a residual income model. Firms with weak internal controls are identified as those that disclose material weaknesses in internal controls in periodic filings from August 2002 to March 2006, as required by SOX. The empirical results, based on a sample of 708 firm-years with the disclosures of material weaknesses, show that firms with weak internal controls have lower market-value. Building on the' efforts for SOX to improve internal controls, more and more firms are starting to adopt Enterprise Risk Management (ERM), because sound internal control system rests on adequate and comprehensive analysis of enterprise-wide risks. In light of this trend triggered by SOX, the second research question in this dissertation asks whether implementation of ERM has an impact on firm performance? The basic approach to answer this question uses a contingency perspective, since all risks arise from the firm's internal and external environment. More specifically, the basic argument states that the relation between ERM and firm performance is contingent on the proper match between ERM and five key contingency variables: environment uncertainty, industry competition, firm size, firm complexity, and monitoring by the firm's board of directors. A sample of 114 firms disclosing the implementation of ERM in their 2005 10Ks and 10Qs are identified by keyword search in EDGAR database. In developing the proper match, high performing firms are defined as those with greater than 2% one-year excess return to develop the proposed proper match. An ERM index (ERMI) is constructed based on the Committee of Sponsoring Organizations (COSO) ERM's (2004) definition of four objectives: strategy, operation, reporting, and compliance. The contingency view is supported by the empirical evidence, since the deviation from the proposed proper match is found negatively related to firm performance.en_US
dc.format.extent1069601 bytes
dc.format.mimetypeapplication/pdf
dc.identifier.urihttp://hdl.handle.net/1903/7287
dc.language.isoen_US
dc.subject.pqcontrolledBusiness Administration, Accountingen_US
dc.subject.pqcontrolledBusiness Administration, Managementen_US
dc.subject.pqcontrolledEconomics, Commerce - Businessen_US
dc.subject.pquncontrolledInternal Controlen_US
dc.subject.pquncontrolledEnterprise Risk Managementen_US
dc.subject.pquncontrolledFirm Performanceen_US
dc.subject.pquncontrolledContingency Theoryen_US
dc.subject.pquncontrolledResidual Income Modelen_US
dc.subject.pquncontrolledSarbanes-Oxleyen_US
dc.titleInternal Control, Enterprise Risk Management, and Firm Performanceen_US
dc.typeDissertationen_US

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