POSTAUDITING CAPITAL EXPENDITURES AND FIRM PERFORMANCE - THE ROLE OF ASYMMETRIC INFORMATION

The design of a firm's management control system and its relationship with firm performance are important issues faced by today's managers. This paper hypothesizes that the relationship between firm performance and control (postauditing) of capital investments is dependent on the following firm related variables: asymmetric information, capital intensity, level of capital expenditures, and insider ownership. Among the arguments advanced and empirically confirmed are that (1) firm performance is a function of the appropriate match between postaudit sophistication and these firm related variables, and (2) the performance of firms whose postauditing procedures are "not sophisticated enough" is generally lower than that of firms whose postauditing procedures are "too sophisticated".