Abstract
Numerous corporate scandals, in conjunction with managerial misbehavior, demonstrate the need for compliance management systems (CMS) and the relevance of CMS assurance. This study investigates the impact of CMS assurance on German bank directors' perceptions and decisions, and analyzes whether the type of assurer and the level of provided assurance are relevant. For this purpose, we conducted an experiment with 105 bank directors and used ANOVA to analyze their reliance on the hypothetical company's CMS, and their decisions regarding credit granting, purchase, and recommendation of shares. We chose a 2 × 2 + 1 between‐subjects design, manipulating the assurance provider (audit firm vs. third party) and the level of assurance (limited vs. reasonable), and adding a control condition without any assurance. Our results suggest that assured CMS positively affect bank directors' perceptions and decisions, compared to CMS without assurance. Furthermore, we find that our perception measure and all three of our decision measures are strongly associated with the choice of assurance provider, but only two decision measures are associated with the assurance level. Bank directors prefer assurance provision by an audit firm, whereas the findings regarding the impact of the assurance level are inconclusive. The study's results, which confirm the decision‐usefulness of CMS assurance, are of interest for managers, in particular compliance officers, auditors, creditors, regulators, and academics.
Highlights
In the aftermath of recent scandals relating to global industrial players, and high-profile governance failures, there has been an increased awareness of a need for compliance management systems (CMS) (Berings & Adriaenssens, 2012) followed by major investments in implementing and improving CMS (Andreisová, 2016)
Differentiating between an audit firm and the Technical Control Board as an alternative assurance provider, the results indicate that audit firms have a stronger influence on the perceptions and decisions of bank board members
Conditions 2 and 3, which are the conditions with an audit firm, have higher means than the remaining Conditions 4 and 5 are the case versions characterized by the presence of the Technical Control Board
Summary
In the aftermath of recent scandals relating to global industrial players, and high-profile governance failures, there has been an increased awareness of a need for compliance management systems (CMS) (Berings & Adriaenssens, 2012) followed by major investments in implementing and improving CMS (Andreisová, 2016). CMS encompasses a set of processes and measures to protect enterprises from possible violations of regulatory compliance (Abdullah, Indulska, & Sadiq, 2009; Gammisch & Balina, 2014; Ramezani, Fahland, van der Werf, & Mattheis, 2011). The increasing relevance of compliance management implies that perceptions of a company's integrity, ethics, and corporate governance values are crucial, and that management has incentives to signal to its external stakeholders its managerial commitment to ethical principles and the law Investments in CMS can keep companies proactive regarding continuous improvement processes, and flexible regarding regulatory changes (Abdullah et al, 2009; Anon, Filowitz, & Kovatch, 2007; Perskow, 2003). Noncompliance cases are complex and have multiple implications such as monetary (penalties, sales declines, or failure to conclude contracts) and nonmonetary costs (reputational damage, loss of trust and credibility) (Abdullah, Indulska, & Sadiq, 2016; Amiram et al, 2018; Armantier & Boly, 2008; Ètienne, 2010)
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
