Tensegrity of Internal Control System, Board’s Ability and Corporate Governance Practices

Abstract

Using unique propositions of systems and peoples approaches, this study aims to examine the tensegrity of internal control system, board’s ability and corporate governance practices (CGPs) by evaluating the impact of CGPs on the internal control system and the board of directors’ ability to manage and steer a company in an efficient manner. We analyse the moderation effect of the internal control system on the relationship between CGPs and board’s ability. We used confirmatory factor analysis (CFA) and structural equation modelling (SEM) to place evidence highlighting the impact of CGPs on the internal control system and board’s ability. The variables used were tested for endogeneity and the results found to be robust. The statistical strength of CGPs on internal control systems is found to be greater than the board’s ability. We documented that robust internal control system facilitates CG practices to improve the abilities of the board to attain corporate excellence by moderating the later variables by the former one. Our findings infer CG practices gives rise to a dynamic internal control system resulting in a better risk mitigation and reliable financial reporting and monitoring by the company’s agents, that is, the board of directors.