IntroductionAccording to the internal control guidelines adopted by Tehran Stock Exchange (TSE) in 2012, in order to achieve corporate objectives, the board of directors is required to ensure that internal controls are established and implemented appropriately and effectively, and at least annually, disclose the results in a report entitled "Reports on internal controls". That is why the topic was the focus of professional associations and experts in the field of accounting. According to the above mentioned definitions, empirical research on the issue is more essential than ever. Weaknesses in internal control can either directly or indirectly affect an entity's activities. Therefore, this study examines whether internal control weaknesses can affect stock price crash risk.Internal control is a dynamic system covering all kinds of risks and deviations from policies and procedures Chorafas [1]. Chenhall [2] believes that internal controls are adopted to assist management to achieve business goals and desired results. Ogneva et al. [3] believe that internal control is a fundamental and dynamic process that continuously conforms to the changes that their organizations are faced with Karagiorgos et al. [4] believe that internal control is not just a one-sided tool for controlling the order and rightness of certain situations, but it is a method of detecting the value added up to a company, achieving the index of effectiveness and profitability of the company. Internal control systems reduce risks and help management in ensuring the reliability of financial statements and compliance with laws and regulations Spira and Page [5]. A weak control environment has the potential to allow error in estimation and procedures, earning's management by opportunistic managers and their tendency to withhold bad news due to various incentives Kothari et al. [6].Corporate managers tend to exaggerate their financial performance by withholding bad news and accelerating the release of good news, hoping that poor current performance will be camouflaged by strong future performance. If managers withhold and camouflage bad news for an extended period, negative information is likely to be stockpiled within a company. Once the amount of accumulated bad news reaches a certain threshold and concealing them for a longer period is more costly or impossible, it will be released all at once, leading to negative stock returns following to shareholders' concern and thus stock price crashes Kim and Zhang [7]. The main question is whether the lack of effective internal control or a material weakness in internal control over financial reporting affects the major sources of information that is financial statements provided by corporations for capital market participants so that it leads to future stock price crash risk.According to Hutton et al. [8] and Kim and Zhang [7] stock price crash implies that a corporate's stock price has suffered a sharp decline in the year under review. As the severe reductions in stock price can be the result of a general d...
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