Interaction Effect between Corporate Governance and Internal Accounting Control on Accounting Fraud
Asian Tax Journal Vol. 15 No. 1 (2014), pp. 63-82
Abstract
Prior evidence that higher－quality corporate governance and internal accounting control reducethe accounting fraud leaves unaddressed the interaction effect of corporate governance and internalaccounting control on that. This study provides evidence of both in documenting a negativeassociation among accounting fraud, corporate governance, internal accounting control andinteraction effect of corporate governance and internal accounting control. We used 216 samples that were listed on KOSPI and KOSDAQ(54 audit review firms, 162matched firms). Results of this research are as follows. First, Firms with higher governance andinternal accounting control are also found to occur less accounting fraud. Second, interaction of governance and internal accounting control has non－significant effect onthat. But, after separating samples into KOSPI and KOSDAQ, the interaction has negative effecton that only in KOSDAQ samples. Specially, there are institutional limits of internal accounting control in Korea. Under thesecircumstances, these results suggest that one mechanism to supplement the limits of internalaccounting control by improving governance for monitoring manager's incentives to distortfinancial statement.
Keywords
- corporate governance
- internal control
- interaction effect
- accounting fraud
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