| In order to enhance the core competitiveness and sustainable development,enterprises must formulate and implement development strategy capable of supporting its future quite a long time and determine the long-term development goals and strategic planning based on comprehensive analysis and scientific predictions of the reality and future trends.In recent years,business diversification has been a more common phenomenon in China.Data analysis of sample enterprise showed that the current number of diversified businesses account for above 40% of all the number of sample firms.The vast majority of them are non-related diversification,accounting for 94% of the number of samples of the diversified businesses.Diversification has become one of the important strategic choices for enterprise development.However,having multiple industry segments will cause greater inherent risks in the management and control areas to diversified businesses such as operational risk and reporting risks.With the increase in the number of diversified business sales and commercial transactions,different management or production process,information of the business merger,procedures to find improper dealing behavior and transactions of miscommunication between different offices and industrial sites.How to conduct an effective way to control the company,to make the right,diversified,strategic choices in order to maximize the value of the company,has become one of the important issues to be focused by the company theory and internal control theory.Internal control of modern company is a kind of management function,and a spontaneous governance mechanism adopted by the corporation to reduce costs,improve management efficiency and achieve the development strategy.It has become an important means of corporate governance adopted by the enterprise,and the primary task of regulatory authorities to maximize the value of the company,which has been continually strengthened with the growing prosperity of China’s capital market.Ministry of Finance and other four ministries is jointly issued the Basic Standard for Enterprise Internal Control and its supporting guidelines for putting forward a clear and orderly requirements to the implementation of the internal control of listed companies in 2008 and 2010.The Ministry of Finance and the Office of SFC and jointly issued the "the notification on the 2012 board of listing companies on category and in batches implementing internal control system of norms" in 2012,which required state-owned and non-state-owned companies on category and in batches to promote the implementation of internal control system of norms,and made a detailed,specific implementation method.The introduction of this series of laws and regulations,marked the internal control of China’s listed companies has evolved from a voluntary corporate governance mechanisms into an act of institution building strongly implemented by the regulatory body.In these internal control standards,"enhancing the company’s operating efficiency and effectiveness,and achieving the company’s development strategy" were regarded as the main internal control objectives,to maximize the corporate value.Then,as an important measure imposed by the Ministry of Finance and other regulatory authorities,can improving the quality of internal control really improve the company’s value? What is the relationship between quality of internal control and diversified strategy decision? Can the quality of internal control improve to realize the value of the diversified businesses? Since the external market conditions and the degree of the government intervention are different to the non-state-owned listed companies and state-owned listed companies,how does the quality of internal control influence their diversified operation choice and value achievement? There are less systematical studies on these issues currently.Therefore,this paper takes China A-share non-financial listed companies as the object of the study,and takes advantage of the sample data from 2008 to 2014,on the basis of relevant theories,to carry out empirical test on how the quality of internal control influences the implementation of the diversified strategy and the effect of diversified value realization.This thesis is divided into seven chapters.Chapter 1,introduction,introduces the research background and significance,content,ideas and methods,as well as the main innovation;Chapter 2,theoretical basis and literature review;Chapter 3,background and situation analysis of China’s corporate internal control system;Chapter 4,empirical test on how internal control influence diversified strategy choice;Chapter 5,empirical test on how diversification influence business value;Chapter 6,empirical test on how the quality of China’s internal corporate control influences the realization of diversified operation value;Chapter 7,conclusions and policy recommendations.Based on the theoretical analysis and empirical test,the paper found that,on the whole,internal control as an important management resource,provides an important safeguard for enterprise diversification strategy.Good internal control system can also produce high-quality information,help enterprises obtain lower cost of capital,be conducive to enterprise to make favorable diversified strategy choice,and internal control mechanism can curb corporate management doing low-effect diversified extension due to the self-interested behavior.But overall,the quality of internal control and the degree of business diversification are positively correlated,indicating that the resource-based theory is more dominant in the relations between internal control and diversification.Even it may be the option of the value maximization beforehand,but not necessarily efficient afterwards.Diversification can be influenced by the various factors.The degree of business diversified operation and excess value are negatively related.The discount of diversified businesses in the sample period of this study is still evident.The subsequent test also showed the diversification discount was endogenous.With the improvement of the quality of internal control,enterprise value will be larger.Internal controls can significantly upgrade business diversified operation value.The impact of the internal control on diversification is more pronounced to non-state-owned enterprises than to state-owned enterprises as for the different nature of ultimate controller of the enterprise.Unrelated diversification will greatly impair enterprise value.However,when non-state-owned enterprises operating unrelated diversification,its internal controls have significant improving effect to realize its value.While for state-owned enterprises,internal controls have significant improving effect to realize its value of its related diversified business.The first innovation of this paper is providing a new interpretation on the feasibility of diversification strategy and on the relationship between diversification operation and corporate value from the internal control perspective;the second is providing new evidence the economic consequences of internal control from the perspective of the strategy implement of diversification operation and the value realization.This paper provides ideas and suggestions for enterprises to improve the feasibility of the implementation of diversification strategy,provides a basis for the relevant regulatory authorities to formulate policies,and provides new empirical evidence for investors to judge the value of business investment.Based on the above findings,the paper has certain theoretical and practical value.Research on quality of internal control has impact on diversification decisions,has a certain contribution to the literature of the economic consequences for the internal control,and provides a new perspective to the understanding of motivation for diversification.Research on quality of internal control provides new empirical evidence to the internal mechanism and result of realizing value of diversification,and to achieve operational efficiency,effectiveness and objectives of development strategy by internal control.This paper gives some new revelation from the theoretical and empirical prospect on comprehensively understanding the role of internal control in the strategic decision-making of corporate diversification and in the course of business,and has guiding significance for enterprises to strengthen internal control.In the current new business and operating environment,based on China’s "Internal Control Standard for Enterprise",absorbing new thinking and new changes of latest internal control framework in COSO(2013 edition),this research paper provided inspiration to the construction of the internal control of China’s business diversification;provides a feasible idea for Chinese enterprises to build a modern scientific management system and develop healthily and sustainably by rediscovering how strengthening internal controls systems affects enterprise’s diversification operation;based on the internal control angle,and discusses the mechanism of how corporate diversification impacts on enterprise value to provide a reference for our enterprise to make diversification decision,to encourage enterprises to improve their internal control based on the actual situation,to provide a solid guarantee for enterprises to be bigger and stronger and develop healthily,and to provide a basis for the making of regulatory policy.Since the release of the "Basic Norms of Corporate Internal Control" by the five Ministries in 2008,the Ministry of Finance and the Commission promoted and implemented norms of corporate internal control system in the Main Board-listed companies in classification and in batches,and required Main board-listed companies should disclose the 2014 Annual Report as well as the Board of Directors self-evaluation report and the audit reports of the internal control issued by CPA firm,from which we can see that China’s relevant departments attach importance to the construction of internal control work.Improving the internal control system is significant for the realization of the business value of diversity,so it is necessary for the diversified enterprise group to supplement and perfect the application guidelines of the internal control of capital allocation,movements of capital and trade and other activities among divisions of diversified corporate enterprise.The evidence of the importance of internal controls from the perspective of diversification provides a basis for the relevant departments to develop more effective policies. |
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