The review of the effect of internal control weaknesses on the firm performance and firm value

In this paper, we examined the effect of the internal control weaknesses on the firm performance and firm value for 93 firms in the Securities and Exchange of Tehran in the year 1394. This research can reduce the gap in the relevant literature and provide evidence about the effect of the instruction of the internal controls passed by the Securities and Exchange Organization of Tehran. To evaluate the internal control weaknesses, we used the auditor reports on internal controls based on the internal controls instruction of Securities and Exchange Organization of Tehran enacted in 16/02/1391 and the list of internal control requirements published with that instruction. In order to measure the Firm performance, we used Return on Assets (ROA) and market value of the firm stock was used for measuring the firm value. Based on hypotheses, we expected the negative and significant effect of internal control weaknesses on the firm performance. By cross-sectional regressions, we concluded that internal control weaknesses have a negative effect on the firm performance and firm market value. Also, the results show that internal control weaknesses have a negative effect on the relation between accounting income and firm market value.