Internal Control Material Weaknesses Disclosure And Enterprise Innovation Investment

Innovation is the key driver for the high-quality development of the Chinese economy.As technological innovation subjects,enterprise innovation enthusiasm and investment level determine the strength of the country’s overall innovation capability.But the high-risk nature of innovation investment inhibits the enterprise innovation enthusiasm and restricts the improvement of their innovation capability.Therefore,how to improve the enterprise control ability of innovation risk is not only related to their innovation enthusiasm and innovation investment level,but also related to the effect and efficiency of enterprise innovation.Internal control is a risk control process which all of the enterprise employees participate in,and whose purpose is to reasonably ensure the realization of enterprise goals.Consequently,the establishment of a sound internal control and working it effectively is of great significance to manage enterprise innovation risks efficiently,and to promote and guarantee enterprise innovation.How to build and operate internal control to promote enterprise innovation has become a hot topic of research.However,most of the existing researches calculate the comprehensive index of internal control effectiveness or the effectiveness index of internal control components based on the information disclosure of internal control construction and operation and study the relationship between the effectiveness of internal control and enterprise innovation investment.Because these practices have obvious limitations,their conclusions are inconsistent.Whether there are internal control material weaknesses(ICMW)is the international standard for measuring the effectiveness of internal control.Because enterprise that disclose ICMW must have it,which indicates that their internal control is ineffective;some enterprise that do not disclose ICMW may conceal it,and more likely they do not have any ICMW.Therefore,in terms of the overall situation of internal control information disclosure,the disclosure of ICMW can reflect the poor effectiveness of internal control objectively.That is to say,whether the internal control is effective depends on the disclosure of ICMW or not.Studying the relationship between the effectiveness of internal control and enterprise innovation investment from the perspective of ICMW disclosure can be more helpful to improve the enterprise internal control information disclosure behavior and their internal control effectiveness improvement.So,how does the disclosure of ICMW affect the enterprise innovation investment? There is no literature to make a comprehensive and in-depth study of this issue dedicatedly.There is no doubt that the disclosure of ICMW is directly subject to the enterprise manager’s motivated choice behavior.Then,how does the manager’s motivated choice behavior affect the relationship between the disclosure of ICMW and enterprise innovation investment? In order to make the research conclusions more relevant to the actual environment and more helpful to guide practice,it is necessary to study the influence of different external information environments on the relationship between the disclosure of ICMW and enterprise innovation investment.To answer the above questions,this dissertation selected A-share listed companies from 2012 to 2019 in Shanghai and Shenzhen stock markets as research samples,mainly focusing on the following aspects based on the information asymmetry theory,principal-agent theory,and signaling theory: Firstly,examined the overall impacts of ICMW disclosure on enterprise innovation investment and empirically tested the relationship between them using DID model.Besides,product of coefficient method was used to further validate their intermediary path;Secondly,combined with the theory of risk perception and internal control immune system,examined the moderating effect of the manager’s motivated choice behavior of the disclosure of ICMW on the above-mentioned basic relationship and the moderating effect test was used to verify the results;Finally,considering the interaction of internal and external information environments,examined and empirically tested the moderating effect of the external information environments on the above-mentioned basic relationship after embedded the following aspects in the aforementioned theoretical basis: information interpretation function and pressure application function by analyst coverage,information dissemination effect and market pressure effect by media coverage and institutional shareholding trustee and self-interest protection.The findings are as follows:(1)Compared with companies that do not disclose ICMW,companies that disclose ICMW significantly reduce their innovation investment after disclosing this information,that is,the ineffective internal control can inhibit enterprise innovation investment obviously,and agency costs,risk-taking and financing constraints play an intermediary role among them;(2)The unfavorable impact of the ICMW disclosure on enterprise innovation investment only exists in companies that do not disclose this information actively;the more adequate the disclosure of ICMW remediation information,the weaker the impact of ICMW disclosure on enterprise innovation investment;the timeliness of the ICMW disclosure does not affect the relationship between ICMW disclosure and enterprise innovation investment significantly;(3)The adverse impact of the ICMW disclosure on enterprise innovation investment increases as analyst coverage increases;media coverage and institutional shareholding do not affect the relationship between ICMW disclosure and enterprise innovation investment significantly;Further distinguishing on the types of media-oriented and institutional investors revealed that the higher the degree of marketoriented media coverage and the proportion of independent institutional investor shareholding,the greater the negative impact of ICMW disclosure on enterprise innovation investment.The main theoretical innovations of this dissertation are as follows: Firstly,reveals the impact of the internal control effectiveness on enterprise innovation investment and its path mechanism from the new and more objective perspective of ICMW disclosure,which not only helps to understand the relationship between internal control and enterprise innovation investment more reliably,but also overcomes the research conclusion disputes caused by unscientific measurement methods of internal control effectiveness,and enriches the research literature on the factors affecting enterprise innovation investment;Secondly,reveals the internal influence mechanism of manager’s motivated choice behavior such as the initiative of ICMW disclosure,the ICMW remediation information disclosure,the timeliness of ICMW disclosure on the relationship between the ICMW disclosure and enterprise innovation investment,which not only deepens the understanding of the internal formation mechanism of the effect of internal control on enterprise innovation investment,but also enriches research literature on the consequences of manager’s motivated choice behaviors;Thirdly,reveals the influence mechanism of major external information environment factors such as analyst coverage,media coverage,and institutional shareholding on the relationship between the ICMW disclosure and enterprise innovation investment,which not only reveals the influence mechanism of the main external environmental factors that the effectiveness of internal control affects enterprise innovation investment,but also enriches research literature on the consequences of analyst coverage,media coverage and institutional shareholding.The main practical significance of this dissertation are as follows:(1)From the perspective of promoting enterprise innovation development,the research conclusions not only provide theoretical basis for the corporate governance and management to strengthen the construction of internal control,improve the initiative,timeliness disclosure of ICMW and remediation effectiveness,but also provide ideas for the corporate governance and management to mitigate,eliminate even reverse the negative impact of the ICMW and its disclosure on enterprise innovation investment;(2)From the perspective of optimizing government supervision,the research conclusions provide empirical evidence for the government to improve internal control information disclosure regulations,optimize the corporate governance and internal control mechanism,and coordinate the development of internal and external information environments;In addition,the research conclusions also provide empirical evidence for the government to promote companies disclosing ICMW actively and timely and remediating ICMW seriously;(3)From the perspective of improving investor decisionmaking efficiency,the research conclusions not only provide useful enlightenment for investors to determine the impact of ICMW disclosure on enterprise innovation investment accurately based on manager’s motivated choice behavior and external information environment factors,but also help the investors to make rational investment decisions.