The Research In The Expropriation And Governance Of New Principal-Agent Problem

The trend of equity concentrated structure in the world leads to the appearance of new principal-agent problem. The agency problem between the controlling shareholder and the minority shareholders has become the focus of corporate governance. Consequently it is vital to expand the boundary of the classical internal control theory and set up the new internal control disclosure system, because internal control framework provides a feasible method to constrain the conflicts between the different shareholders. At last, we put forward the preliminary suggestion to perfect China's listed companies'internal control framework and its disclosure system.The whole paper consists of seven chapters including four main parts, namely, introduction, economic research, theoretical analysis, suggestions, conclusion and prospect. Chapter One and Chapter Two is Introduction. Chapter Three is economic analysis. Chapter Four to Chapter Six are Theoretical analysis. Suggestions and conclusion and prospect take Chapter Seven.Chapter One offers a general introduction to the paper presenting research background, research significance, research framework, research methodology and main innovative points.Chapter Two provides us with systematic processing and introduction of relative theories and literature review, which is essential to the success of this research work because they provide the visual angle and the thread of the basis of this research.Chapter Three mainly analyzes the mechanism of emergence and governance on the condition of new principal-agency problem by applying 2×2 morol hazard model.This chapter lays the good foundation for a thorough discussion about the internal control theory and the governance of the expropriation.Chapter Four focuses on the relationship of corporate governance and the internal control. The relationship is explained by the complex science management theory and some other relative theories. First the new institutional economics theory behavior theory is adopted to analyze the origin and nature of the corporate governance and internal control.By applying the transaction theory, it is explained that both the corporate governance and internal control have the same origin, that is, they exist as the transantion governance mechanism to optimize the transaction cost. Second, from the pointview of the contract theory, the corporate governance and the intenal control have the same origin, i.e. the principal-agent relationship. Third, we apply the complex science management theory to argue that the complexity of the entity gives rise to the weakness of them, which means that they can complement each other in the process of completing their role. At last, conclusion is given that it is vital to integrate the theory of corporate governance and internal control system to governance the agency problem. This chapter is the further study of chapter three and also lays the good foundation for a thorough discussion about the internal control theory and the governance of the expropriation.Chapter Five conducts a research in detail on the emergence of the expropriation and its influence on the internal control theory. To explain it, we analyze from three aspect.First, we look back the developing history of internal control, which can be devided into three process: internal-check, internal control system and internal control framework. In the process of the internal control framework, the internal control integrated framework and the enterprise risk management-framework are very important. The publishing of the internal control frame work by the Committee of Sponsoring Organization of the Treadway Commission in 1992, revised in 1994, represents the benchmark of its developing history.The publishing of enterprise risk management integrated framework in 2004 is the most advanced process of internal control framework.The internal control integrated framework and the enterprise risk management integrated framework have the close relationship, the former is the internal core of the latter, and the latter is the development of the former.Second, after the reviewing of the internal control theory, we argue that with the emergence of the new principal-agent problem, the internal control should evolve over it. With the controlling shareholder grasping the internal overseeing authority of the enterprise, the center of power also comes into the hands of the controlling shareholder. To conform to this, the border of the internal control shouder be broadened.Third, the enterprise risk management integrated framework makes it possible, because it emphasizes the importance of the risk, the role of the people and the process of the management. Chapter Five provides theoretical support for the research of Chapter Six.Chapter Six analyzes the governance of the expropiation in the view of the discosure of internal control information. Disclosure of internal control information is helpful to improve the transparency of the information and to correct the asymtry between the controlling shareholders and the minority shareholder. We develop our study in two ways. First, we look back the development of internal control report in the United States, it suggests that as the capital market develops, the internal control information disclosure is very necessary, but the idea of voluntary information disclosure is not enough, the obligatory disclosure system and the internal control auditing is very important. Second, we prove the importance of the obligatory disclosure system and the internal control auditing by applying the theory of impression management, which is a concept in the social psychology. It is explained that impression management behavior is very popular in the information disclosure process, because the stakeholders often use the disclosure management to maximize their profits. The result leads to the worsening of the information quality. It is very clear that the impression management behavior also exists on the condition of the new principal-agency problem, so it is necessary to put into effect the internal control auditing system. In the production process of internal control auditing, auditor independence is vital to the overall efficiency of the outside monitoring mechanism and inside governance. This chapter also explores the result of transformation from the auditor independence to dependence, by presenting and analyzing the three persons game model—the controlling shareholder, the minority shareholders and the Certified Public Accountant , in three circumstances—the perfect information,the imperfect information with the independent CPAs and the imperfect information with the dependent CPAs. The results reported suggest that the auditor independence has a striking impact on decreasing controlling shareholder's expropiation, improving information asymmetry between the principals and agents and increasing the overall economic surplus generated in the markets.Chapter Seven is a brief conclusion of the paper. And some suggestions are given. At last, it also presents the weakness of the paper and prospects for future research.