VII /304
Type II errors (a restatement company fails to conclude that its internal control system is
ineffective for the restated period) or an increase in the likelihood of Type I errors (a
nonrestatement company concludes that its internal control system is ineffective for the
nonrestatement period). The empirical result suggests that the enactment of SOX 404
reduces the Type II errors of ICFR disclosures, without increasing Type I errors. Moreover, it
is shown that although the more flexible and less prescriptive AS5 can lower Type I errors, it
also increases Type II errors.
Based on the finding of higher dividend payouts in countries with strong investor
protection (La Porta et al., 2000) and firms with controlling shareholders (Faccio et al.,
2001), Haw, Leung, Liu, and Wu examine the governance role of legal institutions in the
dividend payout policy of the ultimate owners of firms in which shareholder power is not
aligned with the “divergence” force. Using the firm-level ownership data set from 22 East
Asian and Western European countries, they show that the high dividends payouts for firms
with controlling shareholders are reduced when the reinvestment opportunities of firms are
good in countries with strong legal protection. The finding suggests that the enhancement of
legal institutions can alleviate the efforts of controlling shareholders to cover their
expropriation activities from minority shareholders and shareholder “power” and the
“divergence” force of controlling shareholders offset each other.
The fourth article by Wei, Lu, Chen, and Wang investigate how the reputation of a firm
created by the media can affect its stock market and financial performance during ‘corporate
social responsibility’ (CSR) award announcement periods in Taiwan. They use the content
analysis to capture the information implied in the media reports and find that non-CSR
winner firms have motivation to manipulate the media coverage and the overall level of
news sentiment degree in the firm. However, the media reputation of CSR winners is still
higher than that of non-CSR firms and the stock returns of CSR winners are generally higher
than those of non-CSR firms for a period of four to five months after CSR announcements.
Brief Introduction by Prof. Ming-Huang Chiang