【正文】 th more rapid sales growth. Slightly more than onethird of our sample issues an MRIC. None of the voluntary MRICs mention any material weaknesses。less than half 41 percent of the reports include a statement that controls were effective。 firm characteristics。 Advisory Committee on Smaller Public Companies 2020 . While SOX made 404 Reports mandatory, management reports on internal control MRIC were voluntarily included in corporate annual reports prior to SOX. Since including an MRIC in the annual report potentially increased management?s liability exposure under both Rules 10b5 and 14a9 of the securities laws, MRICs were presumably included to signal differences in internal control quality across panies. In this paper, we examine the relation between firm characteristics and the voluntary inclusion of an MRIC in 1998 annual reports. Prior literature suggests that a high proportion of Fortune 100 panies report on controls in their annual reports Raghunandan and Rama 1994 , while a low proportion of smaller panies report on controls McMullen et al. 1996 . Hence, we examine the relation between firm characteristics and the inclusion of a voluntary MRIC for midsized panies because we are looking for a sample that will provide us with reasonable variation with respect to internal control reporting. We also provide descriptive information about the nature and content of these voluntary reports, and we pare and contrast them with the 404 reports. Our analysis includes 397 annual reports ?led by ?rms with total assets between $250 million and $5 billion. We ?nd that 36 percent of midsized panies include an MRIC in their 1998 annual report, and that the likelihood of an MRIC 1 increases with ?rm size, audit mittee meeting frequency, institutional ownership, and ine growth, and 2 decreases with sales growth. None of the reports mention any reportable conditions or material weaknesses。 less than half 41 percent of the reports include a statement that controls were effective。 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 work of Healy and Palepu 2020 who argue that the demand for disclosure arises from information asymmetry and agency costs between firm managers and outside investors. A naturally occurring research question arising from this theoretical framework involves examining the factors affecting management?s disclosure choices. Voluntary disclosures are likely to be related to economic and governance characteristics of firms Healy and Palepu 2020 . In this study, we examine the relation between voluntary inclusion of an MRIC in the annual report and firm economic and governance characteristics. Firm Characteristics Firm size is positively related to lawsuits alleging financial reporting and disclosure problems ., Carcello and Palmrose 1994。 Beasley et al. 1999 . An MRIC provides a means by which firms with strong internal control, but with other firm characteristics that are associated with a higher incidence of fraud, can signal to external parties their financial reporting quality. Firms with grea