臺大管理論叢 NTU Management Review VOL.30 NO.2

The Benefits of Disclosing Internal Control Weaknesses: Evidence from Taiwanese Banks 196 Table 6 The E ff ects of Internal Control Weaknesses Disclosures on Market Values Coef. Std. Err. t p > t # ICW 0.012 0.005 2.370 0.018 BV 0.543 0.088 6.160 0.000 NI 0.692 0.413 1.670 0.060 SIZE 0.005 0.002 1.950 0.038 DIV_ASSET 0.052 0.020 2.640 0.011 DIV_REV -0.007 0.012 -0.530 0.302 ZSCORE -0.007 0.003 -2.680 0.010 IMR 0.006 0.002 2.800 0.008 _cons -0.049 0.040 -1.220 0.123 Number of obs 141 F(8, 12) 30.28 Prob > F 0.000 R-squared 0.600 Root MSE 0.026 Note: See Appendix for variable definitions. # P -values are presented in one-tailed. Collectively, the results in Table 6 indicate that reporting non-zero ICWs is positively valued by the market. The evidence is consistent with the hypothesis that ICW disclosures convey information other than the deficiencies themselves in the related assets or liabilities, and such additional information is likely to be related to the degree of effort undertaken by banks in assessing their internal control effectiveness. Concurrently, it could also be interpreted that investors do not view banks favorably if they contend that they have no ICWs. 13,14 13 By using the bank reporting ICWs, some may wish to regress MV on ICW numbers and other variables to examine the effects of ICW numbers on bank’s market value. However, only 28 banks report non- zero ICWs, which makes us unable to perform such a test. 14 We thank the anonymous reviewer for giving us the suggestion that testing whether the market value of banks becomes more positive after firms remediate their ICWs. We carefully review the original data, and we find that in our cases, 18 banks reported “already remedied” within 28 observations, and 10 provided a specific date to remedy. Without the specific date of remediation, we cannot provide such additional tests. Though, we agree that such a test would be insightful, and hence future research may conduct such investigation when the data allows empirical testing.