Investment in Internal Accounting Control Personnel and Corporate Bond Yield Spreads: Evidence from South Korea

Abstract

Internal accounting control personnel constitute the operational foundation through which firms ensure the accuracy and reliability of financial reporting, yet their relevance to capital market outcomes remains insufficiently documented. This study evaluates whether investment in internal accounting control personnel is incorporated into corporate bond pricing by considering both the quantitative dimension of staffing levels and the qualitative dimension of personnel expertise. Corporate bond issuance data are merged with mandatory disclosures on internal accounting control personnel for manufacturing firms listed on the Korea Exchange between 2011 and 2021. The analysis shows a significantly negative association between internal accounting control personnel and corporate bond yield spreads, with personnel expertise further reinforcing this relationship. These patterns are consistent with the view that enhanced monitoring capacity and stronger reporting credibility reduce information asymmetry and perceived default risk among bond investors. The evidence positions internal accounting control personnel as an operational and signaling indicator of internal control effectiveness reflected in debt market pricing and suggests that investment in internal control staff extends beyond compliance to produce measurable financial benefits through lower borrowing costs.

1. Introduction

Information asymmetry is a key determinant of pricing in the corporate bond market, where uncertainty in financial reporting and default risk is rapidly reflected in corporate bond yield spreads. Because debt investors rank ahead of equity holders in the event of distress, even small differences in the perceived credibility of financial information can materially influence required yields. Internal accounting control personnel serve as the operational foundation of internal control systems. By executing verification, approval, journal screening, and error detection procedures, personnel enhance the credibility and transparency of financial reporting. Stronger reporting credibility reduces information asymmetry and perceived default risk among bond investors, who incorporate these assessments into yield spreads. These observations suggest that the strength of a firm’s internal control system can meaningfully shape bond investors’ assessments of information risk and default probability. However, empirical evidence on this mechanism remains limited, as prior studies rely primarily on outcome-based indicators—such as material weaknesses, accounting restatements, and audit opinions—that provide delayed and indirect signals of how internal controls function in real time.

To address this gap, the present study focuses on the operational infrastructure underlying internal accounting control. Rather than conceptualizing internal control as a binary compliance designation or policy outcome, the analysis examines the personnel who implement control activities in practice. Internal accounting control personnel constitute tangible organizational resources through which control procedures are executed: greater staffing enables continuous monitoring across accounting processes, while higher expertise supports advanced tasks including error detection, irregularity identification, evaluation of judgment-based estimates, and verification of compliance. Because these personnel characteristics shape the ongoing quality of financial reporting, they are likely to serve as observable signals of information risk to external stakeholders, including bond investors. Accordingly, we expect firms that invest more heavily in internal accounting control personnel to exhibit lower corporate bond yield spreads.

The Korean institutional environment provides a distinctive setting in which to examine these relationships. Listed firms in Korea are legally required to disclose detailed information regarding internal accounting control personnel—including team size, tenure, and professional certifications—allowing the construction of highly granular input-based measures of internal control capacity. Such disclosures make it possible to directly test whether labor investments in internal control are reflected in bond pricing, an analysis that is not feasible in most other capital markets. By linking corporate bond issuance data with mandatory personnel disclosures for non-financial manufacturing firms listed on the Korea Exchange between 2011 and 2021, the analysis shows that firms with larger internal control teams and a higher proportion of professionally certified staff exhibit significantly lower corporate bond yield spreads.

This study makes four primary contributions. First, it introduces input-based measures that capture the operational execution of internal control, extending the literature beyond traditional outcome-based proxies. Second, it demonstrates that internal accounting control personnel function as economically meaningful signals in the corporate bond market, thereby identifying capital-market consequences of internal control that extend beyond financial reporting outcomes. Third, by exploiting Korea’s unique disclosure requirement on internal control accounting personnel, the study provides rare empirical evidence linking organizational investment in internal control capacity to the cost of debt financing. Finally, by reframing labor-based internal control capacity as an investment rather than a compliance formality, the study broadens the conceptualization of internal control and positions personnel staffing and expertise as a strategic resource with direct financial market relevance.

The remainder of this paper is structured as follows. Section 2 reviews the related literature and develops the hypotheses. Section 3 outlines the research design and variable construction. Section 4 presents the empirical results. Section 5 concludes with practical and policy implications.

2. Prior Research and Hypotheses

Corporate bond yield spreads embed risk premia that compensate investors not only for expected default losses over the risk-free rate but also for information risk. Because bondholders bear losses prior to shareholders in the event of default, they are particularly sensitive to the credibility and transparency of financial reporting. When firms face severe information asymmetry or are perceived to have low reporting quality, bond investors demand higher yield spreads as compensation (Sengupta, 1998). Consistent with this view, prior research documents that higher quality accounting information is associated with lower costs of debt and equity, as more reliable earnings reduce uncertainty about future cash flows and default risk (Francis et al., 2005). These findings suggest that mechanisms which enhance the effectiveness of internal control over financial reporting can materially affect bond pricing.

In this context, internal accounting control personnel represent the core human capital through which internal control systems operate on a day-to-day basis (Ryu et al., 2016; H. Choi et al., 2014). The scale of internal control staffing reflects a firm’s operational coverage capacity: when staffing is adequate, control activities such as transaction verification, approval reviews, journal-entry screening, account analysis, and anomaly detection can be performed regularly and systematically. By contrast, firms with insufficient personnel are more likely to truncate, delay, or omit control procedures, increasing the probability that errors or irregularities accumulate and that financial reporting becomes more volatile. These operational differences are directly observed—either through disclosures or through the incidence of control failures—and are incorporated into bond investors’ assessments of information risk and default likelihood.

Importantly, sufficient investment in internal accounting control personnel reduces information asymmetry between managers and external capital providers by enhancing the accuracy, transparency, and verifiability of reported information (J. H. Choi et al., 2009; Lee et al., 2012; H. Choi, 2021, 2022). Stronger internal control execution minimizes reporting discretion and opportunism, thereby improving the credibility of financial statements and attenuating uncertainty perceived by creditors. Enhanced transparency not only mitigates bondholders’ exposure to downside risk but also contributes to more efficient pricing of securities, lowers agency costs, and supports long-term firm value creation. Thus, internal control staffing serves as a key organizational resource that strengthens both the informational environment and the economic fundamentals upon which firm value is assessed.

Investment in internal accounting control personnel also functions as a governance-related signal of a firm’s commitment to high-quality reporting and internal control effectiveness. Expanding internal control staffing is not a purely administrative cost; it reflects a strategic decision to allocate resources to monitoring, compliance, and risk management. From a signaling perspective, firms that allocate more personnel to internal control credibly convey their intention to reduce agency problems and to maintain a transparent information environment, which bondholders may interpret as a favorable signal about the firm’s long-term value creation and downside risk (J. H. Choi et al., 2009; Lee et al., 2012; Ryu et al., 2016). Consistent with this interpretation, prior studies find that firms with stronger internal control staffing are perceived as having more effective governance and tend to receive higher credit ratings.

Taken together, these arguments imply that quantitative investment in internal accounting control personnel is not merely an expansion of organizational size, but an investment in the firm’s information infrastructure and monitoring capacity. Sufficient staffing reduces the likelihood that control procedures are omitted, facilitates early detection of misstatements or fraud, and improves the consistency and predictability of financial reporting. By lowering information asymmetry and enhancing reporting credibility, such investment reduces the risk premium demanded by bond investors. Accordingly, if internal accounting control personnel strengthen external confidence in reporting quality, investors should demand lower yield spreads when pricing corporate bonds.

H1. 

A higher level of quantitative investment in internal accounting control personnel is associated with lower corporate bond yield spreads.

Beyond staffing levels, the expertise of internal accounting control personnel determines the precision and judgment applied to control activities. Professional certifications and accumulated experience enhance the capacity to evaluate complex accounting estimates, scrutinize high-risk or non-routine transactions, and detect opportunistic managerial reporting. This qualitative dimension improves reporting reliability and predictability in a manner that cannot be achieved solely through greater headcount. Because bond investors rely heavily on financial statements when evaluating credit risk (Francis et al., 2005), high personnel expertise is likely to be interpreted as a strong signal of reduced information risk and enhanced reporting credibility. Accordingly, if greater expertise reduces perceived information risk and increases external confidence in reporting quality, investors should demand lower risk premia when pricing corporate bonds.

H2. 

A higher level of qualitative investment in internal accounting control personnel is associated with lower corporate bond yield spreads.

3. Data and Research Design

3.1. Data

The sample consists of corporate bonds issued between 2011 and 2021 by manufacturing firms listed on the Korea Exchange (KOSPI) with a December fiscal year-end. Manufacturing firms are selected to enhance comparability in production cost structures, accounting systems, and regulatory environments across firms, thereby reducing cross-industry heterogeneity in bond pricing. Firms are included only when complete information is available for (i) financial statement data and foreign ownership from KIS-Value, (ii) bond issuance information and credit ratings from FnGuide DataGuide Pro, and (iii) internal accounting control personnel from the internal accounting control report attached to audit report filings submitted through the Financial Supervisory Service’s DART system. This screening procedure ensures that the selected observations maintain consistency in fiscal year-end reporting and data comparability across sources.

To mitigate heterogeneity in corporate bond yield spreads driven by structural industry differences, non-manufacturing firms, financial institutions, and utilities are excluded. Internal accounting control personnel information—including personnel composition, job titles, professional certifications, and work experience—is manually hand-collected from audit report filings and merged with firm-level financial information. Personnel records are cross-checked across multiple years to verify continuity and prevent discrepancies, ensuring reliability in the internal accounting control personnel measures. Observations associated with modified audit opinions or negative equity are removed to eliminate distortions related to severe reporting issues and financial distress.

After applying these criteria, the final sample consists of 259 corporate bond issues that satisfy all data requirements. The sample size reflects the number of observations meeting all completeness and comparability criteria. All financial variables are obtained from KIS-Value, and continuous variables are winsorized at the 1% and 99% levels to mitigate the influence of extreme values.

3.2. Model Specification

To empirically examine whether investment in internal accounting control personnel affects corporate bond yield spreads, the baseline regression model in Equation (1) is constructed with the bond yield spread at issuance as the dependent variable and investment in internal accounting control personnel as the primary explanatory variable. In line with prior literature, firm-level characteristics and bond-specific features known to influence the cost of debt are incorporated as control variables (Sengupta, 1998; Bhojraj & Sengupta, 2003; Elliott et al., 2010).

$$\begin{array}{cc}\hfill {SPREAD}_{i,t}={\beta }_0& +{{\beta }_{1}IC\_RATIO}_{i,t-1}+{\beta }_2{SIZE}_{i,t-1}+{\beta }_3{LEV}_{i,t-1}+{\beta }_4{ROA}_{i,t-1}\hfill \\ & +{\beta }_5{CFO}_{i,t-1}+{\beta }_6{MB}_{i,t-1}+{\beta }_7{RATE}_{i,t-1}+{\beta }_8{INTCOV}_{i,t-1}\hfill \\ & +{\beta }_9{FSH}_{i,t-1}{+\beta }_{10}{LOAN}_{i,t}{+\beta }_{11}{DUR}_{i,t}\hfill \\ & +FixedEffects(Industry,Year)+{\epsilon }_{i,t}\hfill \end{array}$$

(1)

Firm-level explanatory variables are measured at year t − 1 to ensure that they reflect information available to investors prior to bond issuance and to mitigate contemporaneous endogeneity, consistent with established empirical practice. In contrast, bond-specific characteristics—such as issuance amount and maturity—are measured at issuance, since they are fixed by bond contract terms (Sengupta, 1998; Bhojraj & Sengupta, 2003). Although firm fixed effects could alleviate unobservable firm-specific heterogeneity, they are not feasible in this setting due to limited within-firm variation in bond issuance and personnel composition. Instead, industry and year fixed effects mitigate systematic sector-level and macroeconomic differences. The coefficients are estimated using ordinary least squares, with heteroskedasticity-robust standard errors clustered at the firm level.

Equation (1) serves as the baseline specification to test H1, which captures the quantitative dimension of internal accounting control personnel through IC_RATIO. To test H2, the qualitative measures IC_EXP and IC_CPA replace IC_RATIO in alternative specifications to examine the qualitative dimension of internal accounting control personnel. This modeling choice is consistent with our theoretical argument that quantitative staffing levels strengthen internal control monitoring capacity, whereas qualitative expertise enhances reporting credibility and reduces investor-perceived information risk. While IC_EXP is reported in months in the descriptive statistics for ease of interpretation, its natural logarithm is used in the regression analyses to mitigate skewness and reduce the influence of extreme values.

The model also incorporates key sources of firm and bond risk. Risk factors are captured through SIZE, LEV, ROA, CFO, MB, RATE, INTCOV, FSH, LOAN, and DUR, which jointly control for financial risk, information and growth uncertainty, and bond-contractual risk. In addition, observations with modified audit opinions and negative equity are excluded from the sample to mitigate extreme reporting and financial distress risk.

Consistent with prior studies, the corporate bond yield spread—defined as the difference between the yield to maturity of a corporate bond and the yield of a government bond of identical maturity—is adopted as a proxy for the cost of debt (Ortiz-Molina, 2006; Elliott et al., 2010). Yield spreads reflect pricing outcomes determined by investors and capture marginal changes in the information environment that may not be embedded in credit ratings alone.

The key explanatory variables capture firms’ investment in internal accounting control personnel, distinguished along quantitative and qualitative dimensions (Moon et al., 2012). For H1, the ratio of internal accounting control personnel to total employees (IC_RATIO) reflects quantitative investment. A negative coefficient on IC_RATIO (β₁) indicates that larger staffing enhances continuous monitoring, mitigates information risk, and reduces required yield spreads. For H2, qualitative personnel characteristics are captured using the natural logarithm of average work experience in months (IC_EXP) and an indicator variable equal to 1 when at least one certified public accountant is included among personnel (IC_CPA). A significantly negative coefficient on IC_EXP or IC_CPA is consistent with the prediction that higher expertise strengthens internal control execution and lowers yield spreads.

Firm-level determinants of the cost of debt are included based on prior literature (Kaplan & Urwitz, 1979; Sengupta, 1998; Mazumdar & Sengupta, 2005; Ryu et al., 2016; H. Choi et al., 2014). Specifically, SIZE, ROA, and CFO are generally associated with lower yield spreads, whereas LEV captures financial risk and is expected to increase spreads. MB reflects growth opportunities and the associated uncertainty, INTCOV serves as a proxy for firms’ ability to service debt, and FSH mitigates information asymmetry and agency issues.

Bond-specific characteristics are also controlled for, including the offering amount (LOAN), and maturity (DUR), as these features influence the premium demanded by investors (Bhojraj & Sengupta, 2003). Larger offering size may reduce spreads through economies of scale, and longer maturities typically increase spreads due to heightened exposure to interest rate and default risk. Detailed definitions of all variables are provided in Appendix A.

4. Empirical Results

Table 1. Descriptive statistics.

Variables	Mean	Min	Median	Max	Std. Dev.
SPREAD	2.523	0.101	2.306	8.677	1.995
IC_RATIO	0.058	0.000	0.027	0.455	0.092
IC_CPA	0.348	0.000	0.000	1.000	0.477
IC_EXP (months)	97.239	8.200	96.935	228.000	41.061
SIZE	20.304	17.445	20.100	24.254	1.463
LEV	5.731	0.018	0.484	17.433	7.911
ROA	0.031	−0.320	0.034	0.519	0.077
CFO	0.042	−0.157	0.035	0.219	0.065
MB	0.001	0.000	0.000	0.007	0.001
RATE	5.820	2.000	4.000	17.000	3.515
INTCOV	0.082	−11.604	0.090	14.839	1.415
FSH	0.109	0.000	0.071	0.743	0.131
LOAN	22.035	19.008	21.938	26.854	1.874
DUR	1.787	0.250	2.000	2.500	0.494

Variables are defined in Appendix A.

reports the descriptive statistics of the variables. The dependent variable, SPREAD, has a mean of 2.523 and a median of 2.306, indicating that sample issuers offer an average yield premium of approximately 2.5 percentage points over government bonds of comparable maturity. For internal accounting control measures, the mean IC_RATIO is 0.058, indicating that internal accounting control personnel account for roughly 5.8% of total employees. The mean IC_CPA is 0.348, and IC_EXP averages 97.239 months—approximately 8.1 years—indicating substantial tenure among internal control staff. The distributions of IC_RATIO and IC_EXP also exhibit sufficient variation across firms, suggesting that both quantitative and qualitative measures are appropriate for empirical testing. Firm and bond characteristics exhibit patterns consistent with large, profitable issuers with stable financial profiles.

Table 2. Correlations.

	SPREAD	IC_RATIO	IC_CPA	IC_EXP	SIZE	LEV	ROA	CFO	MB	RATE	INTCOV	FSH	LOAN	DUR
SPREAD	1.000
IC_RATIO	−0.175	1.000
IC_CPA	0.031	−0.206	1.000
IC_EXP	−0.003	−0.022	0.090	1.000
SIZE	−0.075	−0.123	0.574	0.117	1.000
LEV	0.058	−0.223	−0.182	−0.041	−0.064	1.000
ROA	−0.196	0.265	−0.137	−0.048	0.005	−0.059	1.000
CFO	0.102	−0.097	−0.002	0.043	0.158	0.088	0.333	1.000
MB	0.121	−0.193	−0.158	0.027	−0.236	0.067	−0.022	0.002	1.000
RATE	0.102	−0.386	−0.367	−0.117	−0.804	0.125	−0.548	−0.328	0.130	1.000
INTCOV	−0.136	0.000	0.105	−0.009	0.108	0.071	0.041	−0.028	−0.064	−0.041	1.000
FSH	0.028	0.010	0.247	0.160	0.452	−0.025	0.085	0.315	−0.019	−0.038	0.001	1.000
LOAN	−0.042	0.298	0.249	−0.040	0.253	−0.215	0.103	0.000	−0.268	−0.244	−0.058	0.010	1.000
DUR	0.242	0.011	−0.160	0.027	−0.143	0.013	−0.071	0.027	0.126	0.195	−0.117	0.055	−0.241	1.000

Variables are defined in Appendix A.

presents the correlation matrix. SPREAD is negatively correlated with IC_RATIO (–0.175), indicating that firms with a higher proportion of internal accounting control personnel tend to exhibit lower corporate bond yield spreads. This directional association is consistent with the expectation in H1 that greater quantitative investment in internal accounting control personnel is associated with reduced information risk and narrower yield spreads. While IC_EXP and IC_CPA exhibit weaker bivariate correlations with SPREAD, this is consistent with the notion that qualitative personnel attributes are more likely to be reflected in multivariate analyses that control for firm fundamentals. ROA and INTCOV are negatively correlated with SPREAD, consistent with the view that higher profitability and stronger debt-servicing capacity are associated with lower borrowing costs. MB shows a positive correlation with SPREAD, suggesting that high-growth firms face higher yield spreads due to greater uncertainty. Correlations among independent variables are moderate, and no pair indicates a potential multicollinearity concern.

Table 3. Regression results: staffing of internal accounting control personnel and corporate bond yield spreads.

	Dependent Variables:
	SPREAD	RATE
Intercept	−59.199 (−3.77) ***	64.18 (14.79) ***
IC_RATIO	−5.156 (−2.13) **	−5.552 (−6.51) ***
SIZE	2.605 (3.71) ***	−2.786 (−15.58) ***
LEV	−4.331 (−0.80)	9.054 (4.31) ***
ROA	−2.252 (−2.92) ***	2.569 (3.93) ***
CFO	11.273 (2.29) **	−8.574 (−3.37) ***
MB	996.077 (2.57) ***	−1.119 (−4.38) ***
RATE	0.910 (3.03) ***
INTCOV	0.068 (0.32)	0.162 (1.59)
FSH	−7.937 (−3.27) ***	1.15 (0.85)
LOAN	0.084 (0.37)
DUR	0.367 (1.21)
Fixed effects	Year and Industry	Year and Industry
Adjusted R2	0.917	0.962
F-value	23.27 ***	82.18 ***
Observations	259	259

Variables are defined in Appendix A. **, *** denote statistical significance at the 0.05, and 0.001 levels, respectively, based on two-tailed tests.

summarizes the impact of internal accounting control personnel size on corporate bond pricing. The coefficient on IC_RATIO is significantly negative when SPREAD is the dependent variable, indicating that firms allocating greater staffing to internal control activities face lower borrowing costs. This result confirms H1 and aligns with the theoretical expectation that enhanced monitoring capacity reduces information risk and perceived default risk among bond investors. In the specification where RATE is the dependent variable, IC_RATIO also exhibits a significant negative coefficient; because lower numerical values correspond to higher credit ratings, this finding suggests that staffing capacity is incorporated not only by credit markets but also by rating agencies. The magnitude of the coefficient indicates that an increase in one standard deviation in IC_RATIO is associated with a meaningful reduction in borrowing costs, providing evidence of both statistical and economic significance.

Table 4. Regression results: personnel expertise in internal accounting control and corporate bond yield spreads.

Panel A: Presence of CPA among internal accounting control personnel
	Dependent Variables:
	SPREAD	RATE
Intercept	−27.454 (−2.30) **	59.344 (10.51) ***
IC_CPA	−2.599 (−2.42) **	−1.046 (−1.98) *
SIZE	1.097 (2.07) **	−2.858 (−11.96) ***
LEV	−1.63 (−0.29)	12.275 (4.42) ***
ROA	−15.557 (−2.00) **	13.464 (3.10) ***
CFO	6.574 (1.59)	−1.434 (−0.45)
MB	88.482 (0.27)	−89.32 (−0.57)
RATE	0.06 (0.20)
INTCOV	0.051 (0.26)	0.424 (3.35) ***
FSH	−7.435 (−3.14) ***	1.598 (0.89)
LOAN	0.421 (2.05) **
DUR	0.365 (1.23)
Fixed effects	Year and Industry	Year and Industry
Adjusted R2	0.919	0.93
F-value	24.03 ***	45.83 ***
Observations	259	259
Panel B: Work experience of internal accounting control personnel
	Dependent Variables:
	SPREAD	RATE
Intercept	17.442 (1.25)	65.306 (8.15) ***
IC_EXP	−0.276 (−2.28) **	−0.085 (−1.09)
SIZE	0.585 (1.69)	−2.725 (−12.77) ***
LEV	−0.029 (−0.89)	16.137 (6.26) ***
ROA	−8.889 (−2.24) **	17.171 (4.23) ***
CFO	3.582 (0.76)	−4.255 (−1.30)
MB	−15.081 (−0.05)	14.584 (0.89)
RATE	−0.138 (−1.04)
INTCOV	−0.11 (−0.45)	0.397 (2.89) ***
FSH	−0.424 (−0.24)	2.338 (1.62)
LOAN	0.121 (0.62)
DUR	0.575 (1.48)
Fixed effects	Year and Industry	Year and Industry
Adjusted R2	0.772	0.942
F-value	9.34 ***	52.90 ***
Observations	259	259

Variables are defined in Appendix A. *, **, *** denote statistical significance at the 0.10, 0.05, and 0.001 levels, respectively, based on two-tailed tests.

examines the effect of qualitative attributes of internal accounting control personnel. In Panel A, IC_CPA is significantly negatively associated with both SPREAD and RATE, implying that the presence of certified accountants enhances perceived reporting reliability. This indicates that certified personnel meaningfully strengthen the credibility of financial reporting and reduce perceived information risk among external capital providers. This finding fully supports H2 with respect to CPA expertise, suggesting that professionally certified personnel are recognized by both bond investors and rating agencies. In Panel B, IC_EXP is significantly negatively associated with SPREAD but not with RATE. This divergence implies that while markets appear sensitive to experiential indicators of reporting quality, rating agencies may rely more heavily on formal qualifications rather than tenure alone. Thus, H2 receives partial support when expertise is measured by work experience. This pattern suggests that experience-driven improvements in reporting quality are more immediately reflected in market-based pricing than in credit rating evaluations.

Table 5. Regression results: audit committee characteristics and corporate bond yield spreads.

	Dependent Variables: SPREAD
Intercept	−12.149 (−1.18)	−10.043 (−0.92)	−7.821 (−0.76)
AUDCOM_DUM	4.036 (1.48)
AUDCOM_CPA		0.388 (0.28)
AUDCOM_NO			0.025 (0.16)
SIZE	0.137 (0.34)	0.360 (0.87)	0.120 (0.29)
LEV	−0.024 (−0.67)	−0.023 (−0.62)	−0.025 (−0.67)
ROA	−8.436 (−1.98)	−8.456 (−1.93)	−8.301 (−1.89)
CFO	3.832 (0.75)	5.254 (1.03)	3.665 (0.70)
MB	1.171 (0.28)	1.829 (0.41)	1.550 (0.30)
RATE	−0.14 (−0.98)	−0.073 (−0.44)	−0.14 (−0.97)
INTCOV	−0.209 (−0.78)	−0.123 (−0.46)	−0.205 (−0.76)
FSH	−0.241 (−0.13)	−0.507 (−0.26)	−0.223 (−0.12)
LOAN	0.267 (1.18)	0.138 (0.65)	0.267 (1.17)
DUR	0.620 (1.52)	0.624 (1.50)	0.622 (1.51)
Fixed effects	Year and Industry	Year and Industry	Year and Industry
Adjusted R2	0.761	0.752	0.759
F-value	8.75 ***	8.33 ***	8.51 ***
Observations	259	259	259

AUDCOM_DUM: An indicator variable equal to 1 if the firm has an audit committee and 0 other wise; AUDCOM_CPA: An indicator variable equal to 1 if at least one audit committee member holds a certified public accountant designation; AUDCOM_NO: The total number of members serving on the audit committee. Other variables are defined in Appendix A. *** denote statistical significance at the 0.001 levels, respectively, based on two-tailed tests.

reports the results for audit committee characteristics. Neither the existence of an audit committee nor its professional composition or size shows a statistically significant association with SPREAD. Therefore, these expectations are not supported. This lack of significance suggests that board-level oversight mechanisms may be perceived as more symbolic or compliance-oriented relative to the operational capacity reflected in personnel resources, which bond investors can evaluate more directly. These findings suggest that bond investors appear to place greater emphasis on the operational execution of internal controls—captured by the characteristics of internal accounting control personnel—than on board-level oversight structures. Taken together, these results show that H1 is supported and H2 receives partial support, whereas governance-related expectations regarding audit committees are not supported, reinforcing the view that operational control capacity—rather than formal oversight structures—is more salient for bond investors. Overall, the results should be interpreted as associations rather than causal estimates, although the consistency across models and alternative internal control measures supports the validity of the findings.

5. Discussion

The empirical findings of this study provide consistent evidence that internal accounting control personnel influence credit risk assessments and borrowing costs in the corporate bond market. The results demonstrate that both the scale and expertise of internal accounting control personnel function as important determinants of information risk, and, consequently, corporate bond yield spreads. While lagged variables and fixed effects mitigate simultaneity and omitted variable concerns, potential endogeneity arising from unobservable firm-specific characteristics cannot be fully eliminated. Accordingly, the findings should be interpreted as robust associations rather than definitive causal effects.

First, the negative association between IC_RATIO and bond yield spreads indicates that the quantitative capacity of internal accounting control personnel enhances firms’ ability to execute continuous monitoring and reduce reporting uncertainty. Larger staffing levels increase operational coverage across key accounting processes, enabling more effective detection and prevention of errors or irregularities. Debt investors interpret these enhancements in internal control execution as reductions in information risk, leading to narrower yield spreads. This result supports H1 and aligns with prior studies showing that improvements in reporting transparency reduce investors’ required risk premiums.

Second, the qualitative attributes—IC_CPA and IC_EXP—demonstrate that expertise also matters. The presence of certified public accountants and greater work experience significantly reduces bond yield spreads, indicating that investors perceive higher reporting reliability and stronger oversight when internal accounting control personnel possess specialized qualifications. Notably, IC_CPA shows significant effects on both bond yield spreads and credit ratings, whereas IC_EXP exerts stronger influence on spreads than on ratings. This divergence suggests that market-based pricing absorbs improvements in internal control quality more rapidly, while rating agencies may incorporate such information with a lag. These patterns reinforce H2 and highlight the complementary role of expertise beyond staffing volume.

Third, the absence of statistically significant associations for audit committee characteristics suggests that board-level oversight structures alone do not fully capture internal control effectiveness. Rather, debt investors place greater weight on personnel directly responsible for carrying out control activities. This distinction underscores the importance of operational control execution rather than formal governance structures and demonstrates that internal control outcomes cannot be fully inferred from formal structures.

Fourth, several methodological features—industry and year fixed effects, heteroskedasticity-robust firm-clustered standard errors, and lagged explanatory variables—support the robustness of the findings. The consistency of coefficient signs and significance levels across specifications strengthens confidence that the results are not driven by unobserved heterogeneity or contemporaneous endogeneity. Nonetheless, the analysis remains associative rather than causal, and results should be interpreted accordingly.

Taken together, the findings indicate that internal accounting control personnel are not merely compliance-related cost drivers but function as strategic resources that shape firms’ information environments and financial outcomes. By reducing information asymmetry, increasing reporting credibility, and signaling greater commitment to internal control, personnel investment yields measurable economic benefits in the form of lower borrowing costs. We also acknowledge that endogeneity concerns, particularly omitted firm-level traits, may persist despite lagged specification and fixed effects; thus, the results should be interpreted as associative rather than strictly causal. Future research may incorporate firm fixed effects or instrumental variable approaches when richer within-firm variation becomes available.

6. Conclusions

This research evaluates whether the quantitative and qualitative attributes of internal accounting control personnel influence credit risk assessments and borrowing costs in the corporate bond market. Prior studies have predominantly relied on outcome-based indicators of internal control—such as compliance adoption, material weaknesses, or audit opinions—providing delayed and indirect signals about how internal controls operate in practice. In contrast, the present analysis focuses on the operational workforce responsible for executing control activities, recognizing that these personnel constitute a core mechanism for ensuring accurate and transparent financial reporting and mitigating the risk of errors and irregularities. Consequently, their staffing levels and expertise have the potential to affect bond investors’ perceptions of information risk.

The empirical evidence shows that a larger proportion of internal accounting control personnel is associated with lower corporate bond yield spreads, with personnel expertise further reinforcing this effect. Interestingly, the results reveal that market-based pricing mechanisms respond more strongly to personnel attributes than do credit rating assessments, suggesting that debt investors incorporate improvements in internal control execution more rapidly than rating agencies. Meanwhile, structural characteristics of the audit committee do not exhibit significant associations with bond yield spreads, indicating that debt investors place greater weight on operational control execution than on formal oversight structures.

Beyond extending the literature by shifting attention from outcome-based proxies to operational control capacity, the findings demonstrate that investments in internal accounting control personnel have material implications for capital-market pricing. By reducing information asymmetry and improving reporting credibility, internal control staffing operates not only as an internal governance mechanism but also as a strategic signal in capital markets. Lower borrowing costs associated with stronger internal accounting control personnel suggest that such investment should be viewed not merely as a compliance requirement but as a strategic financial decision yielding tangible financial benefits.

Some limitations remain. Although personnel attributes provide concrete information about internal control capacity, more granular details such as task allocation, workflow design, and monitoring intensity could not be observed. Future research may incorporate richer operational metrics, explore interactions between internal accounting control personnel and audit committees, or examine cross-country institutional differences to deepen understanding of how internal control mechanisms shape capital markets. As with most archival studies, the findings should be interpreted as associations rather than causal estimates.