Section 404 Material Weaknesses: Using Communication Strategies to Predict Bankruptcy, Mergers, or SEC Reporting Problems within the Computer Industry

摘要

We use Benoit's (1995) image restoration typology to analyze the communication strategies computer firms apply to disclose their material weaknesses in Section 404 reports. The results of this study indicate that although the majority of firms report corrective actions, some firms use non-corrective action strategies in response to material weaknesses and these firms experience significant increases in the incidence of mergers, bankruptcy, and regulatory noncompliance. The occurrence rate is nearly double for non-corrective action firms compared to the industry. In addition, firms that use non-correction action strategies appear to have significantly more control environment material weaknesses than firms that use corrective action strategies.