TY - JOUR
T1 - Human resource investment in internal control and operating efficiency
AU - Shin, Bosun
AU - Choi, Seungju
AU - Han, Jongsoo
N1 - Publisher Copyright:
© 2021, Korean Accounting Association. All rights reserved.
PY - 2021
Y1 - 2021
N2 - In this paper, we examine whether human resource investment in internal control affects firm operating efficiency at both the firm and individual department level. We find that operational efficiency, derived from frontier analysis, is positively associated with the level of human resource investment in internal control. We also find that the increase in investment in internal control personnel leads to an improvement in operational efficiency. Our cross-sectional analysis indicates that the positive association between the human resource investment in internal control and firm's operational efficiency is more pronounced for smaller firms. Unlike prior studies mainly focusing on the effect of internal control on firm's financial reporting quality, this paper focuses on the positive effect of internal control on corporate operation. Thereby, our study documents that effective internal control system not only enhance the decision making of the external information users as documented in prior studies, but also help internal users, such as management, make better decision. Our findings also informs the debate over the costs and benefits of the internal control reporting requirements, which is relevant and timely given that recent amendment of the External Audit Act, effective November 2018, raised the level of assurance auditors provide on firm's internal control.
AB - In this paper, we examine whether human resource investment in internal control affects firm operating efficiency at both the firm and individual department level. We find that operational efficiency, derived from frontier analysis, is positively associated with the level of human resource investment in internal control. We also find that the increase in investment in internal control personnel leads to an improvement in operational efficiency. Our cross-sectional analysis indicates that the positive association between the human resource investment in internal control and firm's operational efficiency is more pronounced for smaller firms. Unlike prior studies mainly focusing on the effect of internal control on firm's financial reporting quality, this paper focuses on the positive effect of internal control on corporate operation. Thereby, our study documents that effective internal control system not only enhance the decision making of the external information users as documented in prior studies, but also help internal users, such as management, make better decision. Our findings also informs the debate over the costs and benefits of the internal control reporting requirements, which is relevant and timely given that recent amendment of the External Audit Act, effective November 2018, raised the level of assurance auditors provide on firm's internal control.
KW - Human resource investment
KW - Internal control
KW - Internal control over financial reporting
KW - Operating efficiency
UR - http://www.scopus.com/inward/record.url?scp=85115214330&partnerID=8YFLogxK
U2 - 10.24056/KAR.2021.08.001
DO - 10.24056/KAR.2021.08.001
M3 - Article
AN - SCOPUS:85115214330
SN - 1229-3288
VL - 46
SP - 1
EP - 34
JO - Korean Accounting Review
JF - Korean Accounting Review
IS - 4
ER -