DisclosureonInternalControlSystemsWord文档下载推荐.docx

DisclosureonInternalControlSystemsWord文档下载推荐.docx

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AsaSubstituteofAlternativeGovernanceMechanisms

SergioBeretta

AccountingDepartment

BoccioniUniversity

Accordingtoagencytheory,variousgovernancemechanismsreducetheagencyproblembetweeninvestorsandmanagement（JensenandHeckling,1976;

Gillan,2006）.Traditionally,governancemechanismshavebeenidentifiedasinternalorexternal.Internalmechanismsincludetheboardofdirectors,itsrole,structureandcomposition（Fama,1980;

FamaandJensen,1983）,managerialshareownership（JensenandMeckling,1976）andincentives,thesupervisoryroleplayedbylargeshareholders（DemsetzandLehn,1985）,theinternalcontrolsystem（BushmanandSmith,2001）,bylawandcharterprovisions（anti-takeovermeasures）andtheuseofdebtfinancing（Jensen,1993）.Externalcontrolisexertedbythemarketforcorporatecontrol（GrossmanandHart,1980）,themanageriallabormarket（Fama,1980）andtheproductmarket（Hart,1983）.

Afterthevariousfinancialscandalsthathaveshakeninvestorsworldwide,corporategovernancebestpracticeshavestressedinparticularthekeyroleplayedbytheinternalcontrolsystem（ICS）inthegovernanceofthefirm.Internalcontrolsystemscontributetotheprotectionofinvestors‘interestsbothbypromotingandgivingassuranceonthereliabilityoffinancialreporting,andbyaddressingtheboards‘attentiononthetimelyidentification,evaluationandmanagementofrisksthatmaycompromisetheattainmentofcorporategoals.ThesefunctionshavebeenwidelyrecognizedbythemostdiffusedframeworksforthedesignofICSthathavestatedthecentralityofinternalcontrolsystemsinprovidingreasonableassurancetoinvestorsregardingtheachievementofobjectivesconcerningtheeffectivenessandefficiencyofoperations,thereliabilityoffinancialreportingandthecompliancewithlawsandregulations（COSO,1992;

2004）.

Notwithstandingtheirrelevance,investorscannotdirectlyobserveICSsandthereforecannotgetinformationontheirdesignandfunctioningbecausetheyareinternalmechanisms,

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activitiesandprocessesputinplacewithintheorganization（DeumesandKnechel,2008）.

Asinvestorstakeintoaccountthecoststheysustaintomonitormanagementwhenpricingtheirclaims（JensenandMeckling1976）,managementhaveincentivestocommunicateinformationonthecharacteristicsoftheICSinordertoinforminvestorsontheeffectivenessofICSwhenothermonitoringmechanisms（theownershipstructureofthefirmandtheboardofdirectors）areweak,andtherebyprovidingthemwiththeconvenientlevelofmonitoring（Leftwichetal.,1981）.Thepossibleexistenceofsubstitutionamongdifferentmechanismshasbeendebatedincorporategovernanceliterature（RedikerandSeth,1995;

FernandezandArrondo,2005）basedonWilliamson‘s（1983）substitutehypothesis,whicharguesthatthemarginalroleofaparticularcontrolmechanismdependsuponitsrelativeimportanceinthegovernancesystemofthefirm.

Inthispaper,wecontendthatdisclosureonthecharacteristicsofICSisarelevantalternativegovernancemechanisminthemonitoringpackageselectedbythemanagement.AccordingtoLeftwichetal.（1981）―managersselectamonitoringpackageandthe

compositionofthechosenpackagedependonthecostsandbenefitsofthevariousmonitoringdevices‖（p.59）.

Inparticular,wefocusparticularontherelationshipbetweenICSdisclosureandtwoothermechanismsofthemonitoringpackage（theownershipstructureofthefirmandtheboardofdirectors）thataccordingtoliterature（JensenandMeckling,1976;

FernandezandArrondo,2005;

Gillan,2006）playarelevantroleinmonitoringmanagement‘sbehavior.WepositthatincentivesforreportingonthecharacteristicsofICSdependonthesupervisoryroleplayedbythefirms‘ownershipstructureandboardofdirectors.

WethereforeexaminethecontentsandextentofICSdisclosureof160Europeanfirmslistedinfourdifferentstockexchanges（London,Paris,FrankfurtandMilan）onathree-yearperiod（2003–2005）.Byusingthisinternationalsample,weareabletothedepictsomefeaturesofdifferentinstitutionalenvironments.

WefindevidencethatdisclosureonICSisasubstituteforthemonitoringroleplayedbyothergovernancemechanismsasownershipconcentration,institutionalownership,theproportionofindependentdirectorssittingontheboardandtheproportionofaccountingexpertmembersontheauditcommittee.

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WeaddtopreviousliteratureonthegovernanceroleplayedbydisclosureonICSbyadoptingacompletedisclosureframeworkthatallowsustoconsiderindetailthecontentandextentofinformationthemanagementdiscretionarilycommunicatesontheICSofthefirm.Whilecorporategovernancebestpracticesaskforthedisclosureonthechar