The purpose of this study is to investigate one specific industry, banking, and its management responses to material weaknesses in internal control within its Sarbanes-Oxley Section 404 reporting. Benoit’s (1995) image restoration typology assists in the determination of the communication strategies management uses to explain how such material weaknesses occur and how management intends to address those weaknesses. Results show that the majority of banks use corrective action when addressing material weaknesses. However, several firms use other non-corrective action communication strategies, which may indicate that management reporting is potentially not transparent. Statistical analysis indicates that banking firms using noncorrective action strategies are larger and display slower asset growth, lower market risk, and lower asset quality than corrective action firms.
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