LAUSR

Internal control certification reduces information uncertainty on the quality of controls and therefore is expected to affect the pricing of equity securities. This study investigates whether chief executive officers’ (CEOs) and chief financial officers’ (CFOs) voluntary certification of internal controls over financial reporting (ICFR) is value relevant. Using a sample of firms from a unique Australian ICFR reporting environment, the study finds that voluntary ICFR certification is positively associated with share price. Moreover, the financial information of ICFR certification firms is significantly associated with the share price if they have higher price volatility, bid-ask spread and analysts’ forecast dispersion, suggesting ICFR certification has an incremental effect on the value relevance of financial information for firms operating within a weak information environment. Results from the returns model, the change model and differences in the R2 support that ICFR certification is useful to investors. The study informs on the value relevance of ICFR reporting outside the United States.