How Does the Heterogeneity of Internal Control Weakness Affect R&D Investment?. Issue 15 (8th December 2019)

• Record Type: Journal Article
• Authors: Li, Wanfu; Han, Yuling; He, Jiangang
• Is Part Of: Emerging markets finance & trade. Volume 55:Issue 15(2019)
• Page Start: 3591
• Page End: 3614
• Publication Date: 2019-12-08
• Subjects: financial reporting -- innovation -- internal control -- nonfinancial reporting; Balkan Peninsula -- Commerce -- Periodicals; Balkan Peninsula -- Foreign economic relations -- Periodicals; Europe, Central -- Commerce -- Periodicals; Europe, Central -- Foreign economic relations -- Periodicals; Europe, Eastern -- Commerce -- Periodicals; Europe, Eastern -- Foreign economic relations -- Periodicals; Turkey -- Commerce -- Periodicals; Turkey -- Foreign economic relations -- Periodicals; Asia -- Commerce -- Periodicals; Asia -- Foreign economic relations -- Periodicals; Eurasia -- Commerce -- Periodicals; Eurasia -- Foreign economic relations -- Periodicals; 382.05
• DOI: 10.1080/1540496X.2019.1620729
• Languages: English
• ISSNs: 1540-496X

Abstract

ABSTRACT: Internal control of nonfinancial reporting has received attention in the Committee of Sponsoring Organizations of the Treadway Commission's new Internal Control-Integrated Framework . This paper explores the effect of internal control weakness (ICW) in financial reporting and nonfinancial reporting on R&D investment. Our results show that ICWs in financial and nonfinancial reporting inhibits R&D investment, and this effect comes mainly from ICWs in nonfinancial reporting. The impact of ICW in nonfinancial reporting on R&D investment is more serious at technology-intensive companies than labor- or capital-intensive companies. The influence of heterogeneous ICW on investment in corporate innovation has time lag effect and takes at least two paths of impact: weakening of executive compensation incentives and internal cash flow oversight. These results suggest that the ICW in nonfinancial reporting play a more important role in the allocation of resources for technological innovation.