The Listed Company Ownership Structure Impact On Internal Control Effectiveness Research

The paper stems from the concern about listed companies’ internal control failures,and begins thinking about global internal control problems. Based on Separation ofOwnership and Control, Theory of Mordern Property Ownership and CorporateGovernance Theory, the paper finds out the relation between ownership structure andinternal control. Ownership structure is the foundation of internal control institution, andinternal control institution is the tool to protect stockholders equity. The paper analysisesthe influence of ownership structure on internal control effectiveness, and finds thatownership structure affects effectiveness of control from owners to operators, operators tomanagers and managers to employees.Then the paper combines normative with empiricalanalyses, and deeply analyzes how listed companies’ ownership structure influences oninternal control effectiveness.The paper firstly analyzes the behavior of internal control subjects in differentownership structures along Stucture—Conduct—Effectiveness ideas. Based on the specialinstitutional background of China’s capital market, relying on motivation theory, startingfrom the rights imbalance of the internal control subjects, the paper analyses the selectionfrom motivation of board of directors and manager in different ownership structures. Thenthe paper builds the long-term games model of Board of Directors and manager includinginternal control system, with Mirrlees-Holmstrom condition, and finds that their Paretooptimal risk-sharing and Pareto optimal level of effort are difficult to achieve, but effectiveinternal control system can be designed to meet the incentive contracts, to achieve bothmaximum expected utility.From the development and evolution of internal control at home and abroad, theessential function of internal control is risk control, and the derivative function is strategicorientation with association of internal control system and enterprise management, so theyconstitute the function system of internal control at this stage. Then drawing on the idea ofthe target function model, the paper proposed a two-dimensional perspective evaluationsystem of internal control effectiveness: risk control+strategic orientation. Then, the paperselects Chinese A-share listed companies as a sample, and evaluates internal controleffectiveness of Chinese listed companies with two-dimensional perspective evaluationsystem. Results show that the overall condition is low. But companies with differentperformances are compared in difference test, we find that internal control effectiveness is not high in companies with high performance. At this point, the paper analyzes empiricallyhow ownership structure impacts on internal control effectiveness. With correlationanalysis and regression analysis, the paper find that ownership concentration influencesinternal control effectiveness greatly, in addition to innovation orientation, and otherfunctions are significant correlation, but their effects are not the same. The nature of thelargest shareholder is significantly negatively correlated with compliance risk control, thatis, compliance risk control is lower in the state-owned holding company. Due to the verylow percentage of management ownership (mean of1.097E-3), the incentive effects ofmanagement ownership is restricted, thus the conclusion is that the correlation ofpercentage of management ownership and internal control effectiveness is not significant.Finally, for the problems, the paper proposes to combine ‘behavior constraints’ with‘consciousness induction’. The internal control mode can regulate behavior of internalcontrol subjects to enhance internal control effectiveness. Specifically, at one aspect ofinternal control institution, behavior of subjects are constrained by optimizing theownership structure and improving its internal control system, thus these ways can reduceor suppress occurrence of internal control deficiencies, and motivate internal controlsubjects to find, disclose and remedy internal control deficiencies. At another aspect ofinternal control implementation, through formulating effective executive incentive plansand enhancing motivation that internal control subjects implement internal controlinstitutions, thus the consciousness is induced to achieve the internal control objectiveseffectively.