Ex ante we do not predict the impact of equity incentives on internal controls. That is, while it is true that management seeks to avoid a MW opinion that could have an adverse impact on share price, it also prefers the flexibility to smooth earnings and meet earnings goals to avoid drops in share price6 . Given both of these incentives increase with equity holdings, it becomes an empirical question as to which effect dominates. Therefore, we state our first hypothesis in the null form: HYPOTHESIS 1. There is no association between internal control weaknesses and equity incentives.