The Effects of Internal Control Systems on Risk, Profitability and Compliance of the US Banking Sector: A Quantitative Approach

Abstract

A strongly quantitative research to investigate whether and how the components of the internal control systems affect the US banking sector. Based on COSO, Basel Committee Frameworks and on the literature, the components of the internal controls were quantified. Independent variables were analyzed in three different regression models, with the credit risk, the profitability and the compliance being the dependent variable in each model. A panel set of data was used comprising by the 210 biggest US Bank Holding Companies for the fiscal years 2013-2017. Most of the data were taken from the proxy statements (DEF 14A) and from the 10-K Statements, due to their qualitative nature. Αll the components of internal controls significantly affect the credit risk, while they significantly affect the profitability and the compliance of US banks, except from the Risk Assessment component in the first case, and the Control Environment component in the second case respectively.