Research Of Internal Control And Company Financial Behavior

The wave of financial scandals in the late1990s and the early2000s has reinvigorated the debate on regulating corporate governance and the accounting profession. Investors’concerns about these scandals and the resulting loss of confidence are commonly cited as a primary reason for the stock market slump in2002. To restore investor confidence and reinforce corporate accountability and professional responsibility, Congress passed the Sarbanes-Oxley Act (hereafter, the Act) in July of2002. The Act was aimed at improving corporate governance, enhancing the quality of financial reports, promoting audit effectiveness and so on. In June2008, the ministry of finance and other four departments of china jointly issued "the enterprise internal control basic norms" which provided authority guidelines for our country’s internal control development. Internal controls have been widely promoted in china’s state-owned large enterprises and list companies, and the role and function of them have expanded from the simple realization of COSO Framework,to promote enterprise strategic objectives, safeguard assets safety integrity, improve operation efficiencies, improve information quality and so on. But these goals get? How the quality of internal control affects enterprise financial risk? Do firms with better internal control quality have stronger desire and higher level of cash dividend payout? Can internal control be useful in reducing the agency costs not only with firms’shareholders and debt holders, but also with the suppliers? Is the stronger the internal control, the bigger the sum of the loan? What is the effect of the internal control to the financing contract in the transitional economy and in the context of different institutional Characteristic? The relating Chinese studies are still race, so this paper studies those issues in the context of China systems.Firstly, this paper studies the relationship between internal control and enterprise financial risk and find that internal control has certain positive effects on financial risk and improve internal control quality can reduce risk. Secondly, this paper empirically studies on the relationship among internal control and corporate payout policy by introducing a probit model and a tobit model. The results show that firms with better internal control quality have stronger desire and higher level of cash dividend payout. Then by examining the relation between internal control quality and mode of trade credit, this paper explores the role of internal control in the contract of firm and its suppliers, Our results indicate that internal control can be useful in reducing the agency costs not only with firms’ shareholders and debt holders, but also with the suppliers. Finally, this paper empirically investigates the effects of internal control on loan borrowing ability and the financing contract in different institutional environment. We found that internal control can improve loan borrowing ability and reduces corporate financing constraints. We also found that the institution environment such as market development, financial market and property rights affect these relations. The more develop financial market, the more significant role of internal control on the bank loan and on reducing corporate financing constraints in the private enterprises, The developed financial market has no obviously effect on the relation between internal control on bank loan and the financing restrain in state-owned enterprises.The contributions of this paper are as follows. Firstly, this paper focuses on the effect of the internal control to the financing contract in the transitional economy and in the context of different institutional characteristic.Secondly, from the perspective of corporate payout policy, studying on the economic consequences of internal control. Lastly this paper empirically investigates the effects of internal control on loan borrowing ability in different institutional environment. Our findings expand the domestic academic research on the economic consequences of the internal control, enriched the literature about the economic consequences of the internal control. Our study also helps us understand more clearly the economic consequences of the internal control in different institution environment. In addition, the conclusion of the study will provide some reference for regulators to strengthen enterprise internal control construction.