The Empirical Study Of The Relationship Between Voluntary Disclosure Of Internal Control Information And The Information Asymmetry In Capital Markets

Due to the practical needs of the companies of our country and the revolutionary disclosing policies of foreign capital markets, the internal control disclosure policies for domestic listed companies are being changed dramatically. With the Chinese Internal Control Standard System released, the execution of compulsory disclosure policy has been put on the agenda. Based on this situation, this paper is trying to focus on the voluntary disclosing period when before the compulsory policies officially enforced. The reason of considering the voluntary period rather than the compulsory one is that voluntary information can provide more information than the compulsory. What's more, because of its deeper-going content, it complements the original accounting information. In this way the disclosing quality has been improved, and also the information asymmetry of the capital markets. No matter before or after the SOX Act, the disclosure issue of internal control information, as a hot spot, has been discussed by western researchers all the time. From perspective of the signaling theory, this paper is trying to prove that the voluntary disclosing behavior has remarkably improved the information asymmetry in a relative long period.This paper selected sample companies in three voluntary years. And the companies which voluntarily disclosed both the self-evaluation report and the verification report by auditors on its internal control system are referred to as voluntary disclosing companies. And the measurements of the information asymmetry level always are as follows:the growth of a company, the grading system of Shenzhen Stock Exchange, the probability of known trading, the day price standard dividend after releasing initial stocks, the agent cost, the standard dividend of the predicted earnings by analysts, the institutional stock holding proportion, the day price standard dividend adjusted by market. This paper selected the variation of day abnormal price standard dividend as the substitute variable of information asymmetry level, in the mean time, other control variables has been selected, like the institution stock holding proportion and the tracking number of analysts. As to the time window, one year has been considered to reflect the long effect by voluntary disclosing behavior.The statistical tests have proved the hypothesis made by this paper, which is that companies do have improved their information asymmetry given by disclosing voluntary internal control information. This conclusion is stable, as it works in all three tested years. What's more, from the tests we also know that during the voluntary behaviors, large scale companies have relative low information asymmetry. The explanation of this phenomenon can be that the bigger companies have lager motivation to disclose because they want more excess earnings than the smaller companies in the capital markets. From other two tests, those companies which initially disclose the reports have showed that they can have more bonuses. And the companies which have continuous disclosing behavior don't have excessive bonus.The conclusions of this paper in some extent indicated that the voluntary disclosure policy has worked well now. The internal control information is indeed needed by the capital markets, and meanwhile the capital market has generously returned them. The results also support the needs for the voluntary policy to the compulsory policy, because there must be some opportunism in the disclosing behavior, and compulsory policy can effectively expel this kind of opportunism. It also can improve the transparency and the liquidity of the capital market, finally make the efficiency of distributing resources much higher, especially for China, which now lacks high quality financial agencies.