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03 Jul 2008
Companies forced to reveal shortcomings in their IT systems due to section 404 will underperform the market, according to new research.
Bruce Weber of the London Business School found that company share prices dropped significantly once they had reported system failings related to their internal controls.
Weber said: ‘If there are weaknesses in your financial systems, it will be punished.’
He analysed 47 companies that disclosed ineffective financial reporting due to inadequate computer systems in 2005 and found that they underperformed the market by 1.5%.
He added that companies that failed to address the problem suffered a further market share drop of some 2.1%.
‘When you disclose your IT weaknesses, shareholder prices drop,’ said Weber. ‘Not only are you going to lose money when you disclose but you are going to consistently lose money.’
The research suggests that shareholder trust in the company can outweigh data accuracy.
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Briefings
By looking at the reasons supplier statements became unfashionable, and the reasons why it is different today, this paper delves into the many benefits that can be obtained by automating the process.
Having a real and true view of your organisation’s current financial position, and having the right systems and processes in place, will ensure that you can make strong choices and are ready to capitalise on opportunities
AccountancyAgeInsight is a frequently updated resource centre for finance professionals, offering a free and easy-to-use digital library of briefings, white papers and other information resources. 
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