Global Journal of Management and Business Research, A: Administration and Management, Volume 23 Issue 10

Sustainable Compliance Programs in Complex Organizations Global Journal of Management and Business Research ( A ) XXIII Issue X Version I Year 2023 9 © 2023 Global Journals Table 1: Summary Statistics for Selected Firm Characteristics Survey of Internal Control systems Non-UK Companies UK Companies Two-Sample t- Value Mean Std Dev Mean Std Dev Long-termdebt 30109.00 119084 7839 18835 1.307 Assets 150793 397596 79322 224096 1.028 Market-to-bk 2.140 2.211 8.052 15.258 -2.074** ROA 0.338 1.602 0.115 0.129 0.987 ROE 0.180 0.111 0.324 0.580 -1.730* Sales 27083 34859 10744 14554 2.927** IASize 0.021 0.139 0.001 0.001 1.013 IAQualify 0.413 0.362 0.611 0.313 -2.459** IAExp 0.616 0.367 0.624 0.325 -0.012 IAgrow 39.37 81.36 1.93 76.13 2.062** IAtrainquality 3.43 1.700 3.97 1.59 -1.419 Table Notes: UK is a dummy variable set to 1 if UK, 0 otherwise; Asset is total assets of firm as at 2006 (compustat #89); MB is the ratio of market to book (compustat #135); ROA is ratio of income before taxes over total assets, averaged for three years ended 2006 (compustat #21/#89); ROE is ratio of income before taxes over total shareholders equity, averaged for three years ended 2004 (compustat #21/#135); VAS is value added scorecard per DTI, averaged for three years ended 2004; IA size is ratio of number of IA staff to total number of company staff (survey question 12/question 7); IAqual is ratio of number of IA staff with accounting qualifications over total size of IA (survey question 13i/12); IA exp is ratio of number of experienced IA staff to number of IA staff (survey question 13ii/12); IA growth is difference between number of IA staff in 2006 compared to 2003, divided by number of IA staff on average (survey question 15-question 12/ave); IA quality is self-assessed effectiveness on a likert scale of 1 to 6 (survey question 16); SOX is dummy variable set to 1 if NYSE cross listed and thus subject to SOX, 0 otherwise; financial is dummy variable set to 1 if financial firm, zero otherwise a. %Equity is defined as the percentage of total invested fund assets invested in stocks and shares. * Significant at 0.10 level ** Significant at 0.05 level ***Significant at 0.01 level Of the 79 firms that responded to the survey, 29 were UK companies and were separately analysed. There were also 27 firms which were subject to US listing and responded to the SOX questions. Finally, there were 20 financial firms. Various stock and flow financial characteristics were modelled to explain the cross-sectional relationship between internal audit control quality and firms risk management policies. These included long term debt, assets, sales, and return on assets, which are generally higher for non-UK firms than for UK firms. By contrast, UK firms exhibit higher market-to-book ratios, higher return on equity. Table 2 also reports the key characteristics of internal control departments. UK internal control depart- ments tend to be lower, but more highly qualified and experienced staff, and are more likely to benefit from training programmes. However, they are growing more slowly than non-UK firms. These findings highlight the importance of institutional and cultural influences on the quality of the internal control departments that monitor the effectiveness and sustainability of regulatory compliance programs. d) Empirical Tests This section reports the results of empirical tests of factors affecting investment in sustainable compliance programs by multinational firms, through investment in high quality internal control departments as developed in section 3 and 4, and based on the survey data outlined in section 5. If there were no association between the level and nature of compliance control department expenditures and either firm (demand-side) or regulatory (supply-side) characteri- stics, then we would not expect any meaningful relationship between overall corporate risk management policy (i.e. managing the volatility of cash flows and/or earnings) and the quality of the internal audit departments. On the other hand, if there was an established empirical relationship with only supply-side (demand-side) characteristics, our predictions would be supported. e) Correlation among Variables Multivariate tests of the propositions first require tests of the correlations among the independent variables, and these are reported in Table 2. Assets and long-term debt are highly correlated, as are ROE with market to book. Further tests (not reported) reveal that, for UK firms, there is an association between these financial characteristics and the level of investment in internal control departments. However the internal control department control variables are not highly correlated with each other and with financial characteristics of the sub-sample continental European firms.