文档介绍：外文文献翻译译文
原文:
Internal Control Weaknesses and Information Uncertainty
AND RESEARCH DESIGN
The Capital Market Consequences of Material Weakness Disclosures
One intention of Section 302 is to inform investors of weaknesses in disclosing firms’ systems of internal controls. If weak control mech anisms increase measurement errors or managers’ ability to manage earnings, then these disclosures may identify firms with previously unknown low quality financial reporting. Theoretically and empirically, recent research indicates that investors pensation for uncertainty about a firm’s financial reporting quality. These studies argue that uninformed investors face an adverse selection problem in trading securities in the capital market.
If investors pensation for uncertainty about a firm’s financial reporting quality,then weakness disclosures have the potential to cause investors to revise upward their beliefs about firm risk. Therefore, we expect disclosing firms to experience both negative abnormal returns and an increase in their cost of capital in response to lower perceived reporting quality. However, investor belief revision requires either that the disclosures convey new information to the market or that the disclosures cause investors to place more weight on value-relevant information previously overlooked in valuation (.,Ou and Penman 1989; Sloan 1996).
There is some question as to whether internal control weakness disclosures meet the necessary conditions to cause belief revision. If weakness disclosures do not convey any incremental information about the quality of firms’ reporting or future cash flows, and if the risk and cash flow expectations associated with low-quality reporting are fully impounded in price, then the public disclosure of weaknesses is unlikely to have informational value. Our first hypothesis, stated in the alternative, reflects this empirical question:
H1:Material weakness disclosures cause investor belief revision tha