Internal Control Weaknesses and Market Value of Cash Holdings Department of Accounting, Payame Noor University (PNU), Tehran, Iran

Subject Areas : Management Accounting

Davood Hassanpour ¹ (Educator of Accounting group.)
Mehdi Safari Gerayli ² (Associate Professor of accounting , Accounting Department ,Bandar Gaz Beranch, Islamic Azad University,Bandar Gaz,Iran)

Received: 2018-03-10 Accepted : 2018-07-11 Published : 2019-12-22

Keywords: internal control weaknesses, cash holdings value, managerial opportunistic behav,

Abstract :

The existence of weak internal controls provides directors to engage in opportunistic exploitation of corporate cash resources. As such, corporate cash holding is anticipated to increase investors' concerns, which, in turn, leads to the underestimation of corporate cash value in the market. Accordingly, the present study examines the effect of internal control weaknesses on the market value of cash holdings. In doing so, Faulkender & Wang (2006) model was used to measure the market value of cash holdings. The research hypothesis was tested based on a sample of 97 firms listed on the Tehran stock exchange during the years 1391 to 1395 and using multiple regression model based on panel data techniques. The results indicate that presence of internal control weaknesses reduces the market value of corporate cash holdings. This suggests that investors undervalue the cash held in the firms with weak internal controls.

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