Analysis On Chinese Enterprise Internal Control Dynamics And Research On Restraining Mechanism

The research on corporate internal control has attracted enormous attention,in particular after the many incidences of accounting fraud in the Western countries.In China,many issues emerge as the study and practice of internal control progress.This paper investigates the underlying mechanism of corporate control of Chinese firms. The paper has both important theoretic contribution and interesting practical implications.This paper adopts a mixture of theoretical and empirical approach.Unlike the financial information for public traded companies,large dataset on corporate control are not readily available.The empirical part of this paper relies on survey data and case studies.Survey based on the recent theoretical development on corporate control was conducted.Based on the analysis of the survey data,this paper proposes a framework of corporate control from both macro and micro perspectives.At the macro level,a multi-layer external control mechanism should be established, including:laws and other legal regulations,security exchange agencies,and accounting standards.At the micro level,a complete and well-functioning internal control should be developed,including both the measures of ex ante control and the measure of ex post assessment.This paper makes the following contributions to the literature.A game theoretical approach proves that small shareholders have little or no influence on firms,while large shareholders take control of corporate control through the direct participation of high-level management.This paper first emphasizes the need of monitoring large shareholders.The paper also first proposes,under the general absence of operationability of current mechanism of internal control,that,mechanism design of internal control should follow a uniqueness principle and a process description with post as the unit principle.Finally,for the first time,the paper uses the tools of fuzzy mathematics to develop an assessment model for the effectiveness of internal control, which can potentially improve the quantitative aspect of the research in this field.