The Impact of Internal Control Weaknesses on Firms’ Cash Policies

International Journal of Accounting, Auditing, and Performance Evaluation, 12(4), 396-421

36 Pages Posted: 15 Jun 2013 Last revised: 23 Sep 2016

See all articles by Mikhail Pevzner

Mikhail Pevzner

University of Baltimore - Merrick School of Business

Gregory Gaynor

University of Baltimore

Date Written: June 23, 2015

Abstract

We study the association between firms’ Section 302 and Section 404 internal control weaknesses and these firms’ cash-to-cash flows sensitivities. We also examine whether the presence of the internal control weaknesses affects the relationship between firms’ asset liquidity and stock liquidity. We find that the presence of Section 404 internal control weaknesses is associated with stronger cash-to-cash flows sensitivities and with weaker impact of higher asset liquidity on stock liquidity. Our results suggest that internal control weaknesses increase firms’ reliance on internal, as opposed to external, financing. Also, internal control weaknesses increase uncertainty over future uses of cash, thereby reducing the positive impact of higher relative cash balances on stock liquidity. Thus, our study provides additional evidence on the potential costs of internal control weaknesses.

Suggested Citation

Pevzner, Mikhail and Gaynor, Gregory, The Impact of Internal Control Weaknesses on Firms’ Cash Policies (June 23, 2015). International Journal of Accounting, Auditing, and Performance Evaluation, 12(4), 396-421, Available at SSRN: https://ssrn.com/abstract=2278880 or http://dx.doi.org/10.2139/ssrn.2278880

Mikhail Pevzner (Contact Author)

University of Baltimore - Merrick School of Business ( email )

1420 N. Charles St.
Baltimore, MD 21201-5779
United States

Gregory Gaynor

University of Baltimore ( email )

1420 N. Charles Street
Baltimore, MD 21201
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
77
Abstract Views
1,568
rank
373,829
PlumX Metrics