Weaknesses in Internal Controls: impacts of investment, information quality, performance, and corporate governance
DOI:
https://doi.org/10.14392/asaa.2025180210Keywords:
Internal Control Weakness, Internal Control, Explanatory FactorsAbstract
Objective: This study examines how investment, information quality, performance, and corporate governance behave in Brazilian publicly traded companies with material weaknesses (MW).
Method: A logistic regression model was used, with a final sample of 985 observations, in a panel, pooled, and cross-sectional model.
Results: The results showed that, as expected, companies with lower financial performance (ROA) and higher earnings management, i.e., lower information quality, had a higher probability of presenting MW. Contrary to expectations, companies with higher levels of corporate governance showed a higher probability of MW, which theoretically should reflect better governance and more reliable internal controls.
Contributions: The relevance of the study is to bring to the debate, in an emerging country, factors that can impact the reliability of mandatory financial accounting information, playing a role in reducing information asymmetry. The implication of the results is to highlight points that increase the probability of material failures in internal controls, which can help improve them and reduce recurrences. As well as showing regulators that, although companies with higher levels of governance are more likely to have material weaknesses, the regulations may be putting pressure on these issues, as evidenced by a reduction in the percentages of MW occurrences in 2024.
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Copyright (c) 2025 Kelly Cristina Mucio Marques, José Braz Hercos Junior, Andréa Lúcia Doná, Ademir Massahiro Moribe
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