Customer Satisfaction and Internal Control

Abstract

We investigate whether firms’ ineffective internal control over financial reporting is associated with customer satisfaction, measured by product ratings on Amazon.com. Internal control weaknesses will likely corrupt the information environment, compromise coordination, and divert corporate resources to address the control deficiencies. Using a large sample of product rating data from Amazon.com, we find robust and consistent evidence that internal control weaknesses are negatively associated with customer satisfaction. Furthermore, the negative association is more pronounced for environment-level (versus other) internal control weaknesses, noncore (versus core) products, and more (versus less) operationally complex firms. Our findings provide initial evidence that ineffective internal control compromises customer satisfaction.