Abstract

Using 465 firm-year observations of publicly litigated firms in the U.S. from 2000 to 2018, this study finds that declines in stock price on securities fraud litigation announcement dates are significantly more severe for publicly litigated firms receiving U.S. SOX 404 internal control material weakness (ICMW) opinions. Also, the stock price declines are more prominent for publicly litigated firms with entity-level ICMW than for those with account-level ICMW. The aforementioned findings show that ICMW opinions have predictive value for public investors and capital market participants.

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