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Disclosure on the internal control system as a monitoring mechanism: evidence from different institutional settings
Journal Title: MANAGEMENT CONTROL 
Author/s: Sergio Beretta, Saverio Bozzolan, Giovanna Michelon 
Year:  2011 Issue: Language: Italian 
Pages:  25 Pg. 125-149 FullText PDF:  762 KB
DOI:  10.3280/MACO2011-001006
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The study addresses the issue of disclosure on Internal Control System (ICS) in the light of the agency theory. The autors posit that reporting to investors on the characteristics of ICS is an alternative governance mechanism that management enacts when other devices are not effective. Analyzing the disclosure on ICS of 160 European firms listed in four different stock exchanges (London, Paris, Frankfurt and Milan) over a three-year period (2003-2005), the autors found empirical evidence that ICS disclosure is a substitute for the monitoring role played by the ownership structure, institutional ownership, the proportion of independent directors sitting on the board and the proportion of accounting expert members of the audit committee. This study provides empirical support for Williamson’s (1983) substitute hypothesis among different governance mechanisms. This study offers insights to firms and practitioners on the relevance of making disclosure on ICS as a monitoring mechanism for investors.
Keywords: Corporate governance, Monitoring package, Internal control systems, Disclosure, Ownership structure, Board of directors, Audit committee

Sergio Beretta, Saverio Bozzolan, Giovanna Michelon, Disclosure on the internal control system as a monitoring mechanism: evidence from different institutional settings in "MANAGEMENT CONTROL" 1/2011, pp. 125-149, DOI:10.3280/MACO2011-001006

   

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