IDEAS home Printed from https://ideas.repec.org/p/kob/dpaper/dp2010-32.html
   My bibliography  Save this paper

Reporting of Internal Control Deficiencies, Restatements, and Management Forecasts

Author

Listed:
  • Katsuhiko Muramiya

    (Research Institute for Economics & Business Administration (RIEB), Kobe University, Japan)

  • Tomomi Takada

    (Graduate School of Business Administration, Kobe University, Japan)

Abstract

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.

Suggested Citation

  • Katsuhiko Muramiya & Tomomi Takada, 2010. "Reporting of Internal Control Deficiencies, Restatements, and Management Forecasts," Discussion Paper Series DP2010-32, Research Institute for Economics & Business Administration, Kobe University.
  • Handle: RePEc:kob:dpaper:dp2010-32
    as

    Download full text from publisher

    File URL: http://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2010-32.pdf
    File Function: First version, 2010
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. 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). General contact details of provider: http://edirc.repec.org/data/rikobjp.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.