Reporting of Internal Control Deficiencies, Restatements, and Management Forecasts
We examine the relationship between accuracy in management forecasts and the effectiveness of internal controls by using the unique setting in Japan, where disclosing management forecasts is effectively mandated. Feng et al. (2009) posit and find that managers of firms reporting internal control weaknesses under the Sarbanes-Oxley Act (SOX) report less accurate earnings forecasts compared with other firms in the U.S., where management forecasts are disclosed voluntarily. In line with this notion, our results show that firms disclosing internal control deficiencies and those restating financial highlights report less accurate management forecasts in the Japanese market, where the disclosure of management forecasts are effectively mandated. Furthermore, we find that manager's optimistic biases cause such inaccurate management forecasts. Our results indicate that the effectiveness of internal controls has a significant impact on internal reports, which are used in forming forecasts; therefore, internal control weaknesses induce less accurate management forecasts.
|Date of creation:||Nov 2010|
|Date of revision:|
|Contact details of provider:|| Postal: 2-1 Rokkodai, Nada, Kobe 657-8501 JAPAN|
Phone: +81-(0)78 803 7036
Fax: +81-(0)78 803 7059
Web page: http://www.rieb.kobe-u.ac.jp/index-e.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:kob:dpaper:dp2010-32. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Office of Promoting Research Collaboration, Research Institute for Economics & Business Administration, Kobe University)
If references are entirely missing, you can add them using this form.