【正文】 s internal control quality. Krishnan (2005) finds that firms with more effective audit mittees report fewer internal control problems in their 8Ks when reporting an auditor change. We expect a wellgoverned firm to exhibit fewer material weaknesses, all else equal. We measure corporate governance with the measure developed by Brown and Caylor (2006). GOVERNANCE SCORE is a posite measure of 51 factors enpassing eight corporate governance categories: auditboard of directors, charter/bylaws, irector education, executive and director pensation, ownership, progressive practices, and state of incorporation.3. Data, sample selection, and material weakness classifications. Data and sample .selectionFor our control firms, we use all 2003 Compustat firms with available market value of equity and earnings before extraordinary items that are not in our material weakness sample and did not appear on Compliance Week as having reported a less severe significant deficiency. We use the entire nonmaterial weakness population as our control group, rather than a matched sample, to avoid choicebased sample bias, which can lead to biased parameters and probability estimates. We summarize our sample collection procedure in Table 2. It is likely that most material weaknesses were disclosed, as it is a criminal offense for managers to conclude that controls are effective when they have knowledge of a material weakness. However, the use of the proxy of a disclosure of a material weakness versus the true underlying existence of a weakness is a limitation of our study.. Material weakness classificationsAlthough we focus on material weaknesses, the most severe internal control problems, these disclosures vary widely with respect to both the severity and underlying reason. Therefore, we partition our sample based on the description of each material weakness found in the SEC filing. Butler et al. (2004) illustrate the importance of examining subsets of mon disclosures. In their setting, they find that a subset of going concern opinions appears to drive the association between abnormal accruals and qualified audit opinions. Similarly, we wish to explore how determinants differ among the various types of material weakness disclosures. As mentioned, it seems likely that the determinants will differ across these three categories. Staffing issues (including segregation of duties problems) will probably be much more likely for smaller, younger, and financially weaker firms that lack resources to hire or train appropriate personnel. Firms with plexityrelated weaknesses will likely be larger, older firms with highly diversified and plex operations. Finally, since the General category includes firms with revenue recognition problems, we expect that these firms may have weaker corporate governance.4. ResultsFirst, the results on firm size, as measured by the log of market capitalization, seem to be mixed. The mean value is weakly significantly smaller for material weakness firms, but the median value is actually slightly larger for the control firms, and the Wilcoxon ranksum test indicates an insignificant difference between the two groups. Although these univariate results are mixed, we hypothesize that firm size is a determinant of internal control quality after controllingr plexity. Therefore, we reexamine this variable in our multivariate analysis below.Next, as predicted, firms with material weaknesses appear to be younger than the other Compustat firms. The mean material weakness firm has been publicly traded for years, while the mean control firm has been traded for years. Our financial health measures, AGGREGATE LOSS and BANKRUPTCY RISK, both indicate that firms disclosing material weaknesses in internal control are significantly weaker financially than the average Compustat firm, as expected. Our three plexity measures, the log of the number of sponsored special purpose entities (SPEs), the log of the total number of operating and geographic segments (SEGMENTS), and the existence of a foreign currency adjustment, are all higher for material weakness firms, providing preliminary support for our hypothesis that accounting plexity creates internal control challenges.There is also preliminary evidence that rapid growth is a determinant of internal control problems. ACQ UISITION VAL UE is significantly higher for material weakness firms than our control firms ( versus ), and material weakness firms are also more often in the highest quintile of industryadjusted sales growth ( versus ). RESTR UCT URING CHARGE for material weakness firms is more than double that for the control firms, lending support for the idea that significant restructuring, with its disruptions to established processes, personnel turnover, and difficult accounting estimates, leads to internal control problems. Finally, there is some support that wellgoverned firms have fewer material weak nesses, with the ttest and Wilcoxon ranksum test both generating weakly significant results. and conclusionsThe recent passage of the SarbanesOxley Act in 2002 marks the first time that all SEC registrants must publicly disclose material weaknesses in internal control over financial reporting. Past research on internal control has been limited to deficiency disclosures from firms that changed their auditors, which created a very limited source of information. Using a more prehensive sample of mandatory material weakness disclosures made pursuant to Sections 302 and 404 of SarbanesOxley from August 2002 to August 2005, we examine the determinants of material show that material weaknesses in internal control are more likely for firms that are smaller, less profitable, more plex, growing rapidly