Research On The Construction, Influencing Factors And Economic Consequences Of The Internal Control Index

Strengthening the internal control construction of listed companies plays a very important role in standardizing enterprise management,promoting goal achievement and ensuring the safety and stability of the capital market.The modern internal control originated in the United States in the early 20 th century.The development has experienced successively several stages including the internal containment,the internal control system,the internal control structure,the internal control integration framework,and the enterprise risk management integration framework.It made an explicit requirement for strengthening the internal control construction of enterprises in China in the form of the newly revised Accounting Law in 2000.At present,the domestic internal control standard system includes two aspects of the standard system and the evaluation system.The internal control standard system is composed of the Basic Standards for Enterprise Internal Control jointly issued by China Securities Regulatory Commission,China Banking Regulatory Commission,China Insurance Regulatory Commission,the Ministry of Finance and the National Audit Office in June 2008,and the Supporting Guidelines for Enterprise Internal Control jointly issued by the above five ministries and commissions in April 2010.The internal control evaluation system includes compulsory evaluation and independent index evaluation.The former is a mandatory evaluation of enterprise internal control conducted by enterprises according to relevant national laws and regulations or employing audit institutions,which is qualitative analysis supplemented with qualitative analysis;the latter is a third-party evaluation using comprehensive evaluation index,belonging to quantitative analysis,with strong objectivity and comprehensiveness.In recent years,the research of the internal control index of listed companies has become a hot topic of academic research.The internal control index is an objective and comprehensive reflection of the internal control situation affected by some factors such as the corporate governance structure and corporate characteristics of an enterprise.The economic consequences refer to the impact on the enterprise value form the choice of accounting policy.Strengthening the internal control construction in listed companies will inevitably have an impact on the creditors,the operators,the employees and other stakeholders,thus affecting the value of the enterprise.Therefore,the internal control has economic consequences.In order to evaluate the internal control situation of listed companies more comprehensively and systematically,in the research,the new ideas and new methods of the internal control evaluation index construction are put forward on the basis of learning from and summarizing the existing research,and the internal control evaluation index system is constructed accordingly.Among them,based on the internal control degree of the target design,the internal control index system takes the strategy,the management,the report,the compliance of the internal control and the asset safety objectives into consideration.It also introduces the correction index with the internal control report audit opinions and the internal control defect disclosure,forming the evaluation index system including six level indicators and 21 secondary indexes.Based on the disclosure of internal control information,the internal control evaluation index system fully considered the five standard system elements,which are the control environment,the risk assessment,the control activities,the information and communication,internal supervision,etc.It also introduces the correction index with the internal control report audit opinions as the variable,forming the evaluation index system including six primary indicators,25 secondary indicators,53 tertiary indicators,and 121 specific variables.Using the evaluation index system designed based on the completion degree of the internal control objectives,the comprehensive evaluation of A-share listed companies in China from 2015 to 2019 was conducted.To test which factor,have a significant influence on the enterprise internal control index and to improve the internal control level of listed companies,this research applied two dimensions based on the corporate governance structure and the corporate characteristics.By the method of multiple linear regression research,it tested the influencing factors of the internal control index in form of empirical study.In order to test the economic consequences of the internal control index and achieve the purpose of achieving the expected economic consequences by improving the quality of internal control,this study empirically tested the economic consequences of the internal control index in enterprise value,debt financing cost and equity financing cost.According to the above research results,suggestions on strengthening the construction of internal control of enterprises and improving the internal control of listed companies are put forward.Through theoretical analysis and empirical tests,the present study draws the following conclusions:(1)The overall internal control of listed companies in China from 2015 to 2019 was good,and the index showed a growth trend year by year.The scores of the internal control index of most companies were at the middle level,even higher,but the scores of some companies were low,and there was great difference among the scores of the internal control index of different companies.(2)The internal control index of listed companies is affected by various factors.From the aspect of equity structure,the internal control index was significantly and positively correlated with equity concentration,and it is significantly negatively associated with equity checks and balances;from the aspect of the board structure,the internal control index was significantly negatively correlated with the board size,and had a significantly positive correlation with the shareholding ratio of the board and the compensation of the board;from the aspect of the structure of the Board of Supervisors,the internal control index is significantly and positively related with the shareholding ratio of the Board of Supervisors;on the stakeholder side,the internal control index was significantly and positively correlated with corporate social responsibility;from the aspect of company characteristics,the internal control index is significantly and positively related to the size of the enterprise,Shenzhen Stock Exchange,the "four major" accounting firms,the eastern region,and the central region.It had a significantly negative correlation with the asset-liability ratio.(3)The internal control index has economic consequences.The internal control index is significantly and positively correlated to the enterprise value,indicating that the higher the internal control index is,the greater its enterprise value is;the improvement of the internal control index has a positive effect on the growth of the enterprise value.The internal control index is significantly and negatively associated with the debt financing cost,indicating that companies with high internal control index can be approved by banks and other creditors,and the cost of debt financing is low.The internal control index is significantly and negatively related to the equity financing cost,which shows that companies with high internal control index have the normative management,strong predictability in future development with small risks,so the investors are willing to invest actively.Therefore,the cost of equity financing is low.The contribution and innovation of this study are in:(1)Index construction: Based on the completion degree of internal control objectives and the disclosure of internal control information,two new internal control evaluation index systems different from the ones in previous studies are constructed in this study,and the internal control target index scores of listed companies are calculated.In the selection of the specific indicators,the selection basis and scope of the indicators are expanded.The number of indicators is enriched,and the specific observation points are detailed.The evaluation criteria of the revised indicators are defined in detail.(2)Index evaluation: This study uses the self-designed internal control target index to specifically evaluate the internal control situation of listed companies from 2015 to 2019 in China from the aspects of the whole,the region,the industry,the plate,the exchange and the sub-index,and draws relevant conclusions.The innovation of evaluation methods and results has been achieved.The relevant evaluation conclusions provide a new path for the general information users to understand and grasp the internal control situation of the listed companies.(3)Influencing factors of index: This study discusses the influencing factors of the internal control index and realizes the innovation of research method;other stakeholders(corporate social responsibility as the alternative variable)variables are introduced to expand the scope of influencing factors of internal control index;large sample tests are conducted to check the problem of insufficient sample size and ensure the robustness of the conclusion.(4)Economic consequences of index: The completion degree of internal control objectives represents the internal control quality.This study tests the economic consequences of internal control index in form of empirical study.It realizes the innovation of research methods.The research also innovates the measurement methods of enterprise value and equity financing cost.The empirical tests of samples of all A-share listed companies in 2015-2019 are conducted,ensuring the robustness of the empirical conclusion and making up for the deficiency of insufficient detection of large samples.(5)The conclusions of the research provide important references,for the national policy makers to make policies,for enterprise regulators to strengthen supervision,for audit institutions to determine the audit focus,for shareholders,creditors and investors to decide an investment,for enterprise customers and suppliers to determine supply and demand,for the enterprise management and workers to standardize enterprise management,and for the scientific research.It has positive practical significance.