Effect of internal accounting control system on the value of cash holdings

ABSTRACT

This study investigates the relationship between the adequacy of internal control personnel and the value of cash holdings. The internal control personnel of firms have a responsibility to ensure the reliability of financial statements, prevent corruption, and protect assets, including cash. Investors value cash based on its use by the company. The value of cash holdings declines when managers use cash to maximize private utility, while it increases when cash is used to create corporate value. The internal control personnel contribute towards increasing the value of cash holdings. The results show that an inadequate number of internal control personnel negatively impacts the value of cash holdings. However, investors ignore the expertise of such personnel when evaluating the value of cash holdings. These findings suggest an increase in firms’ understanding of the significance of human resource investment in terms of internal control and its impact on investors’ decisions.

KEYWORDS:

• Internal accounting control system
• internal control personnel
• human resource in internal control
• value of cash holdings

JEL codes:

• G14
• M41
• M42

Disclosure statement

No potential conflict of interest was reported by the author.

Additional information

Funding

This work was supported by the National Research Foundation of Korea Grant funded by the Korean Government under Grant [NRF-2020S1A5A8044467].