14For example, Baxter International Inc., one of our sample companies, disclosed a material weakness that
occurred in their Brazilian division in their 2003 10-K. For firms with complex organizations, it may not be cost
effective for them to maintain a high level of controls at all locations or divisions.
15We thank Mei Feng, Jeff Gramlich, and Sanjay Gupta for providing the special purpose entity data. We use
the sum of the number of operating and geographic segments for two reasons. First, in most cases, companies
report either operating segments or geographic segments; second, in some cases, companies report location related
segments (e.g., Japan) as their operating segments. Thus the distinction between operating and geographic
segments is not very clear. However, t