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    Forthcoming paper: Repairing Organizational Legitimacy...
    blog entry posted March 23, 2016 by Roger S Debreceny, tagged research 
    184 Views
    title:
    Forthcoming paper: Repairing Organizational Legitimacy Following Information Technology (IT) Material Weaknesses
    intro text:

    A forthcoming paper in JIS is "Repairing Organizational Legitimacy Following Information Technology (IT) Material Weaknesses: Executive Turnover, IT Expertise, and IT System Upgrades" authored by Jacob Z. Haislip, Adi Masli, Vernon J. Richardson and Juan Manuel Sanchez.

    Jacob Z. Haislip

    Adi Masli

    Vernon J. Richardson

    Juan Manuel Sanchez

    body:

    Information technology (IT) is of first-order importance regarding the financial systems’ ability to provide access to and security of accounting records, which ultimately affects financial reporting quality. COSO’s 2013 framework on internal controls highlights the importance of IT since reliance on evolving and new technologies continues to grow. Specifically, COSO’s 2013 framework lists selecting and developing controls over information technology as one of the pivotal internal control principles. Findings from extant research suggest that, relative to non-IT related internal control material weaknesses, IT-related material weaknesses (or IT material weaknesses) have a more negative impact to the effectiveness of internal controls, result in less reliable financial information, and generate consequences that are more adverse. Hence, the existence of IT material weaknesses presents a threat to the legitimacy of an organization. The objective of our research article is to examine how companies repair organizational legitimacy following information technology material weaknesses. We document that firms with IT material weaknesses, compared to firms with non-IT related material weaknesses, are more likely to replace outgoing CEOs, CFOs, and directors with individuals possessing IT expertise. In addition, IT material weakness firms are more likely to upgrade their financial reporting IT system and make other IT initiative changes, such as hiring an executive dedicated to the oversight and management of IT or adding a technology committee to the board. Moreover, we find evidence suggesting that IT material weakness firms that engage in major changes in their IT governance (i.e., those that replace their CFO with executives with IT expertise and/or upgrade the financial reporting system) are more likely to remediate their internal control weaknesses. Overall, firms recognize that IT control breakdowns represent a legitimate threat to the financial reporting environment and firms engage in various steps to restore organizational legitimacy.