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 13 © 2023 Global Journals g) Sensitivity Tests To test the robustness of the results concerning tentative support for proposition 2 based on the crude proxies for international credibility using logistic regression reported in table 8, we alternatively make the assumption that the propensity to expend compliance costs is primarily associated with the desire to smooth earnings. However the results of table 4 imply that there is only a limited relationship between these variables, and thus is likely to be mitigated by the jurisdiction and/or industry in which the firm is based. We therefore decompose the sample into three sub-samples; (a) UK industrial firms (n = 29), (b) European industrial firms (n = 27) and (c) financial firms (n=20). We then conduct tests to infer whether the level of compliance cost expenditure, as proxies by various qualitative characteristics associated with their investment in internal control departments, is associated with the desire by these sub-samples of firms to smooth income, cash flow or asset/liability, respectively. Table 5 regresses various supply side shifters against earnings, cash flow and asset-liability at risk measures (proxies as the standard deviation of return of each of these values for the sample European firms). The earnings at risk regression results imply that the desire for UK firms to gain international credibility through smoothing earnings appears to be negatively associated with the size of the audit department, but positively associated with the training quality. Additionally, after controlling for other factors, there is also a negative association between earnings at risk with supply drivers’ compliance costs. Finally there is a positive association between earnings at risk and the level of R&D expenditures. The overall model is also significant and explains 54% of the total variation. The results for the cash flow at risk OLS regression model are more equivocal for non-UK European firms. Except for the qualifications of the internal control department, there is no statistically significant association between cash flow at risk and internal control department quality. The overall model is also not statistically significant. Finally, the asset-liability at risk proposition is supported by the model shown for financial European firms. There is appositive statistical significance between internal audit experience and asset liability at risk, and a negative association with the size of the internal control department. The overall model is also statistically significant. h) Robustness Tests In order to corroborate the above findings and also validate our predictions, further tests were undertaken of the resilience of the above results for the sub-sample of 59 firms that continued operations a decade after the initial tests reported in tables 3-5 were conducted. The purpose of the robustness tests were to establish a connection between long-term value added per employee and the quality of the business compliance unit as measured above. The empirical tests examined the strength of the association between value added per employee and business compliance unit quality (as measured above) after controlling for a range of other factors (e.g. environmental society and governance scores; risk management disclosure scores; SOX compliance and financial industry dummy variables). Table 6 shows the results. Table 6: Robustness Checks: Ordinary Least Squares Regressions of Value Added per Employee for Surviving Firms (n=59) Predicted Sign Intercept ? -0.335 Financial firm dummy + 0.373 Risk disclosure quality score + 0.004 ESG score + 0.002 Business Compliance unit quality + +0.557** Earnings at risk - -0.002 SOX dummy variable - -0.303 Operating inc Na F-statistic 3.02** Adj R-squared 0.109 Table Notes: This table reports the results of regressing value added per employee for the 59 firms that survived for 10 years after the initial tests reported in Table 9 ({i.e. as at financial reporting year ended 30 June 2015). Financial is a dummy variable set to 1 if financial firm, zero otherwise; Earnings at risk is standard deviation of reported EPS for four years; 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; Business compliance unit quality is a dummy variable indicating whether the internal control department is regulatory compliant or otherwise; ESG Score is thRepRisk (RRI) score latest as reported by ORBIS for the latest reporting year; Risk disclosure quality score is the FOG index score for the firm related to the risk management reporting in the latest annual accounts. * Significant at 0.10 level ** Significant at 0.05 level ***Significant at 0.01 level