The Effect of Internal Control Structure Quality on Firm’s Financial Performance An Applied Study on Companies listed in the Egyptian Stock Exchange

Document Type : Original Article

Authors

1 Accounting Department Faculty of Commerce Alexandria University Alexandria Egypt

2 Accounting department Faculty of commerce Alexandria University October University for Modern Sciences and Arts

Abstract

The study tests the effect of the internal control structure quality (ICSQ) on the firm’s financial performance using a sample of companies listed in the Egyptian stock exchange. The ICSQ is measured by a multi-dimensional index based on COSO framework that measures the ICSQ through the existence and function of the 5 COSO components and their related seventeen principles and the extent to which the ICS is free from material weaknesses. Firm’s financial performance is measured by the earnings per share (EPS). A pilot study is conducted to include the opinion of the financial experts and testing the checklist which is then filled through a content analysis of the firm’s financial statements, reports, company’s websites and other published documents. Research hypotheses were tested using regression models conducted by SPSS packages. Results provided evidence that high ICSQ improves the firm’s financial performance of companies listed in the Egyptian Stock Exchange. The paper was also concerned with studying the individual impact of each of the five COSO components on the firm’s performance. Results revealed that Control activities was the only component that has a positive significant impact of the firm’s performance. The Study also showed a positive and significant effect for firm size and firm’s age which were used as control variables on the firm’s performance.

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