Abstract
SUMMARY We investigate whether the format of internal control weakness (ICW) disclosures required by the Sarbanes-Oxley Act of 2002 influences perceptions of nonprofessional investors. Using a 2 × 2 between-participants experiment, we examine two facets of ICW disclosure formats: ICW presentation salience (high versus low) and ICW disaggregation type (disaggregated versus aggregated). We hypothesize and find evidence of an interactive effect between presentation salience and disaggregation type, such that investors perceive ICWs as less negative when they are saliently disclosed and this effect is enhanced when the material weakness is disaggregated into its individual control deficiencies. We also find evidence of moderated mediation such that high salience of ICW disclosures has a positive indirect effect on investing judgments through management trust, but only when the ICW is disaggregated into its individual control deficiencies.
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