||The Effects of Business Strategy with Clawback Provisions on Internal Control Weaknesses─Mediation Effect
||Department of Accountancy
This study examines the mediation effect of clawback provisions on the association between business strategy and internal control weaknesses (MWs). Using U.S. listed firms in nonfinancial and unregulated industries during 2007-2016 as the sample, I find that prospector strategy is more likely to report material weaknesses. This study also finds that compared with defenders, prospectors are unwilling to adopt clawbacks as a limitation to their top management due to their emphasis on firm growth and expansion. Besides, the results further show that adopting clawbacks can significantly decrease the likelihood and number of MWs reported. However, the mediation effect of clawbacks is insignificant in this study. My findings indicate that business strategy is a useful indicator for evaluating companies’ internal control systems and adopting clawbacks is a measure to decrease MWs, but the mediation effect of clawbacks on the association between business strategy and MW cannot be observed.
List of Tables.......... VI
1. Introduction.......... 1
2. Literature Review......... 4
2.1 Business Strategy........ 4
2.2 Material Weaknesses in ICFR...... 5
2.3 Clawback Provisions....... 6
3. Hypothesis Development....... 9
3.1 Business Strategy and Material Weaknesses.... 9
3.2 Business Strategy and Clawback Provisions.... 9
3.3 Clawback Provisions and Material Weaknesses... 10
3.4 Impact of Clawback Provisions on MWs:
A Mediation Mechanism........ 10
4. Research Design........ 12
4.1 Sample Selection......... 12
4.2 Multivariate Model......... 13
4.2.1 Strategy Measure......... 13
4.2.2 Regression Model......... 16
5. Descriptive Statistics and Empirical Results..... 23
5.1 H1: Business Strategy and Material Weaknesses... 23
5.2 H2: Business Strategy and Clawback Provisions.... 27
5.3 H3: Clawback Provisions and Material Weaknesses... 31
5.4 H4: The Mediating Role of Clawbacks.... 36
6. Robustness Analysis........ 44
6.1 Strategy Score as Independent Variable..... 44
6.2 Financial Crisis......... 45
7. Conclusions......... 47
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