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

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  • Tsai, Yu-Cheng
  • Huang, Hua-Wei

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.

Suggested Citation

  • Tsai, Yu-Cheng & Huang, Hua-Wei, 2021. "Internal control material weakness opinions and the market's reaction to securities fraud litigation announcements," Finance Research Letters, Elsevier, vol. 41(C).
    • Handle: RePEc:eee:finlet:v:41:y:2021:i:c:s1544612320316470
    DOI: 10.1016/j.frl.2020.101833
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    References listed on IDEAS

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    Cited by:

    1. Liu, Wu-Po & Huang, Hua-Wei, 2024. "Internal control opinion shopping: Does initial audit fee discounting matter?," Research in International Business and Finance, Elsevier, vol. 69(C).
    2. Zhu, Jiajun & Hu, Xuetong & Gao, Jing & Tan, Hongping, 2024. "Internal control risk disclosure, media coverage and stock price crash risk: Evidence from China," International Journal of Accounting Information Systems, Elsevier, vol. 55(C).
    3. Linlin Duan & Jintao Zhang & Li Meng, 2024. "Administrative penalties and corporate CSR disclosure strategies," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 45(4), pages 2360-2372, June.
    4. Elias Erragragui & Jonathan Peillex & Mohammed Benlemlih & Mohammad Bitar, 2023. "Stock market reactions to corporate misconduct: The moderating role of legal origin," Post-Print hal-04124991, HAL.
    5. Sun, Wen-Chi & Huang, Hua-Wei, 2024. "Do market investors value the directors’ expertise and independence of a corporate sustainability committee? Empirical evidence from Taiwan," Finance Research Letters, Elsevier, vol. 61(C).
    6. Erragragui, Elias & Peillex, Jonathan & Benlemlih, Mohammed & Bitar, Mohammad, 2023. "Stock market reactions to corporate misconduct: The moderating role of legal origin," Economic Modelling, Elsevier, vol. 121(C).
    7. Unsal, Omer, 2023. "Corporate crimes and innovation: Evidence from US financial firms," Economic Modelling, Elsevier, vol. 120(C).
    8. Tang, Weiran & Tang, Maolin, 2025. "Media attention, internal control quality, and legal litigation," Finance Research Letters, Elsevier, vol. 73(C).
    9. Zhu, Ying & Huang, Ke, 2023. "Customers’ litigation risk and suppliers’ cash holding decision: From the perspective of risk contagion," Finance Research Letters, Elsevier, vol. 55(PB).

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