Research On The Efficiency Of Internal Control Disclosure In Annual Reports Of Listed Companies

The Sarbanes-Oxley Act has caused great change in internal control disclosure and supervision institutions, and also promoted many securities regulatory commissions or departments in other countries to readjust their disclosure system to strengthen their supervision-oriented aim. In 2006, in order to improve the transparency of internal control, China launched the disclosure regulation to the internal control of listed companies, too. How about the disclosures status of internal control in China presently? How effective these disclosures are? Can such disclosures reflect the quality of the companies, the quality of the internal control and the intention of management? How do the share markets react to the disclosures? Is the disclosure regulation effective? In regard to above-mentioned questions to which various stakeholders urgently want to know the key, this dissertation systematically carries out empirical researches.Firstly, this dissertation studies the status of disclosure by classifying and analyzing the internal control information disclosure in annual financial reports according to two separate periods—the period without disclosure regulation (2001-2005), and the period with disclosure regulation (2006). Secondly, based on two periods separately, we probe into whether there are "disclosure", "disclosure according to regulation" and "dual disclosures", while we study the internal agent of disclosure. Finally, we apply the same classification approach to compare the share market effects by way of abnormal return analysis, and we implement abnormal return test and multi-variable regression analysis on EE samples and their matching. In addition, we also explore the effects of disclosure regulation by comparing the conclusions of two different periods.In summary, we get some findings. First, after disclosure regulation in 2006, the percentage of "disclosure" and "disclosure according to regulation" of internal control in annual financial reports have been enhanced obviously, and the degree of elaboration in internal control disclosure and the preciseness of wording have been improved, which to a certain degree improves the transparency of internal control of listed companies. The effect of policy change is clear. Second, according to the study of internal agent, only the control status and management agent in the "disclosure" samples obviously differ from the "non-disclosure" samples in 2001-2005. After disclosure regulation in 2006, the varied determinants of "disclosure", "disclosure according to regulation", "dual disclosure" and "presentation of internal control report" increase largely, and the signaling effects of internal control information become clearer gradually. Third, by way of abnormal return analysis, the market effects study shows that the markets in the periods without disclosure regulation do not react to the annual internal control disclosure and the degree of disclosure, and that the markets in the periods with disclosure regulation significantly react to the annual internal control disclosure and the markets can identify the degree of internal control disclosure and adjust the share prices. However, the multi-variable regression analysis does not support the conclusion.