【正文】 criteria used to assess control effectiveness. Our results illustrate the nature of internal control reporting that was provided under a voluntary system along with the ?rm characteristics associated with this reporting. The rest of the paper is organized as follows. The next section discusses the institutional background and develops the hypotheses. Our research design and sample selection process follow. Results are then presented, followed by a summary and conclusions. INSTITUTIONAL BACKGROUND AND HYPOTHESES Section 404 of SOX requires all public panies to include an internal control report indicating management?s responsibility for establishing and maintaining an adequate internal control structure, and management?s assessment as to the effectiveness of the entity?s internal control over financial reporting. Although mandatory internal control reporting for all public panies is new, many public panies had voluntarily included an MRIC in their annual reports prior to SOX. For example, McMullen et al. 1996 report that the annual reports for approximately onethird of panies listed on National Automated Accounting Research System NAARS in 1993 included an MRIC. Benefits and Costs Associated with MRICs A firm might include an MRIC for a number of reasons―to explicitly state management?s responsibility for internal control,to state the objectives of the pany?s internal control system including describing various ponents of that system ., an independent audit mittee, an internal audit function, etc. , and/or to indicate that management believes that internal controls are effective. All of these reasons are designed to reduce financial statement users? uncertainty as to the quality of the pany?s financial reporting. Prior research indicates that financial statement users view voluntary MRICs as improving internal controls, enhancing the oversight of controls, and adding information for decision making Hermanson 2020 . Although firms expect to benefit by issuing an MRIC, there are costs associated with this disclosure. Under Rule 10b5 it is unlawful“to make any untrue statement of a material fact…in order to make the statements made, in light of the circumstances under which they were made, not misleading” SEC 2020a . In addition, since the MRICs examined were included in annual reports distributed to shareholders, the statements made in these reports are subject to the SEC?s proxy disclosure rules. Under Rule 14a9 it is unlawful to makeany statement which ... is false or misleading with respect to a material fact SEC 2020b . In parison to Rule 10b5, the applicability of Rule 14a9 relating to the issuance of an MRIC is interesting because a plaintiff must only prove that the issuer was negligent in its disclosure under Rule 14a9, whereas a plaintiff must prove scienter under Rule 10b5 Brown and Detore 1989 . A statement by management that internal controls are effective when they are not would expose management and the entity to additional legal liability。 even the inclusion of an MRIC without an explicit effectiveness statement increases the firm?s exposure to legal liability. For example, MRICs without an effectiveness statement often contained a statement that the??corporation maintains a system of internal accounting controls designed to provide reasonable assurance that financial records are reliable for purposes of preparing financial statements.”If management knew or should have known that the entity did not maintain such controls, or there was no reasonable basis for management to believe that the controls would result in reliable financial statements,its exposure to legal liability would have increased. Hypothesis Development We examine firm characteristics associated with the decision to voluntarily include an MRIC. We rely on the wo