A Study of the Impact of Weakness of Internal Control Systems on The Detection of Financial Fraud in Financial Statements and Its Impact on Investment Efficiency: An Applied Study on Companies Listed on The Egyptian Stock Exchange

The main objective of this research is to study the impact of weakness of internal control systems on the detection of financial fraud in the financial statements. And the extent of its reflection on investment efficiency. To achieve this objective, the researchers examined a sample consisted of (106) companies listed on the Egyptian Stock Exchange during the period from 2010 to 2024, with (794) observations. The data was collected and the financial statements, audit and governance data were obtained through the statements and reports published on the (Icon Thomson Reuters) database - and the statements and reports published on the Egyptian Stock Exchange website and the Mubasher Misr website - and some artificial intelligence tools were used to prepare this data so that it would be suitable for statistical analysis, such as the Manus tool.                                       
To prepare the research the researchers developed theoretical framework based on agency theory, asymmetric information theory, and signaling theory, and a quantitative methodology using linear regression models and path analysis to test the research’s hypotheses. This analysis relies on panel data. To achieve the research's objective, descriptive statistical analysis and correlation analysis were used, in addition to presenting the mathematical models used to test the reasrch's four main hypotheses.
Multiple linear regression analysis was used to test the first, second, and third hypotheses. For the fourth hypothesis, mediation analysis was conducted using the Baron and Kenny (1986) model. The statistical results derived from the data analysis were interpreted using Stata statistical software and Python programming language, which provides powerful and reliable statistical tools.
The results of the research revealed a positive and significant relationship between the weakness of internal control systems and fraud in financial statements. It was also concluded that there is a positive and significant relationship between financial fraud and investment efficiency, in addition to a positive and significant relationship between the weakness of internal control systems and investment efficiency. Finally, financial fraud plays a mediating role in the relationship between the weakness of internal control systems and investment efficiency.
This research contributes to bridging the research gap related to the role of internal control systems as a tool for improving investment efficiency by reducing the chances of manipulation in financial reports.