| Abstract |
This paper investigateshow capital markets in a code-law country, Japan, react to the disclosure of internal control weaknesses (ICW). The Japanese government attempted to implement a more concise, efficient, and, thus, less strict internal control reporting system than Section 404 of the US-SOX. In fact, for the first two years, the disclosure rate of ICW has been much lower in Japan than in the U.S. Our event study analysis shows that the disclosure of ICW does not generate significantly negative market reactions. However, when we focus on large firms, negative market reactions are observed even after controlling for other information released around the disclosure date, audit quality, and other firm attributes. |