What is it about?
We study the organizational impact of internal control systems, by examining 1,593 firms with 15,606 executives over 2002-2010. We find that internal control systems explain a sig- nificant amount of executive and, in particular, CFO compensation, after controlling for other governance, executive personal characteristics, firm, and macroeconomic determinants of pay. Moreover, the negative relationship between pay and internal control systems suggests that executives operating in firms with ineffective internal control systems earn greater compensation.
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Why is it important?
The results of the longitudinal analysis suggest that firms with inef- fective internal control systems have greater agency problems and, consequently, greater levels of executive compensation. The CEO pay shows a nonsignificant relationship with internal control systems.
Perspectives
Angelo Paletta is Professor of Management Control Systems at Alma Mater Studiorum, Univer- sity of Bologna, deputy rector position, responsible for the Finance and Social Responsibility Reporting of the University of Bologna. He was appointed by Pope Francis as a member of the Vatican Catholic Education Congregation. His main research interests include: internal controls, educational management and leadership; public governance and accountability; crisis management and reorganization.
angelo paletta
Universita degli Studi di Bologna
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This page is a summary of: SOX Disclosure and the Effect of Internal Controls on Executive Compensation, Journal of Accounting Auditing & Finance, February 2016, SAGE Publications,
DOI: 10.1177/0148558x16630445.
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