Does internal control over financial reporting really alleviate agency conflicts?

This study investigates whether internal control over financial reporting
(ICFR) alleviates the managerial expropriation of corporate resources. We do
this by examining the potential effects of material weaknesses in internal
control on the values of corporate cash holdings and capital expenditures. Our
findings suggest that ICFR facilitates the scrutiny and discipline of capital
markets and thus alleviates the agency problems. Our results support the
premise that high financial reporting quality impairs managers’ abilities to use
corporate resources in a self-serving manner.