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This study investigates the relationship between corporate diversification, institutional investors and internal control quality. Using a sample of firms disclosing internal control information from 1999 to 2011, the results show that corporate diversification is positively associated with the likelihood of internal control weakness. Moreover, this relationship is stronger (weaker) when firms have higher transient (dedicated) institutional ownership, indicating that transient (dedicated) institutional investors increase (mitigates) the internal control problems arising from diversification. This study contributes to the literature by providing evidence on the role of corporate diversification in the quality of internal control.

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This paper investigates the effect of political connections on the association between family firms and conservative financial reporting. While family firms have incentives to reduce agency and litigation-related costs by means of conservative reporting, firms with political connections tend to have opaque financial reporting, which enable them to engage in rent-seeking activities. Using data for Taiwanese listed firms between 1996 and 2012, the final sample observations were 13,877 firm-year observations from a population of 21,393 firm-year observations. We found that political connections weaken the positive relationship between family ownership and conservative financial reporting. This suggests that politically connected family firms make fewer demands for conservative financial reporting. This study contributes to the literature on how political connections affect the family owners’ reporting incentives. Policy makers may consider political connections as an essential factor with respect to establishing governance practice in family firms.

Directors' and officers' (D&O) legal liability insurance releases directors and officers from the threat of litigation and personal liability stemming from their decisions on behalf of the corporation. While researchers have examined some of the determinants of internal control weaknesses, it is not clear whether excess D&O coverage motivates managers to weaken the quality of firms' internal controls. This study examines whether excess D&O coverage affects the effectiveness of internal controls. Based on a sample of Taiwanese listed firms for the period 2008 to 2012, we find that firms with excess D&O coverage exhibit a greater likelihood of internal control weaknesses. This finding is driven primarily by company-level weaknesses rather than by account-level weaknesses. Because the disclosure of D&O insurance may convey additional information about managers' actions, our findings have implications for other emerging markets.