The Empirical Study On Influence Factors Of Internal Control Material Weaknesses

On the crossroad of the century, many financial frauds and Big-companies collapse have happened in the world, especially in U.S. these led to Congress to pass laws to consummate corporate government, in 2002 Sarbanes-Oxley Act was passed, and public company accounting oversight committee was formed. 302 and 404 provisions of SOX requires all listed companies to strictly consummate and disclose internal control. In the setting, our government issued "basic standards of internal control in company". So on the occasion, it is very significant to study internal control. We overview many academic papers relative to internal control after pointing out our study background and incentives; then we go back its development of internal control in U.S and our homeland. In the course of go-back, we analyze its background and definitions of "Internal check" "Internal control" "Internal control structure" "Internal control-Integrated Framework" "enterprise risk management". Basing on these analyses, we provide a definition of internal control material weaknesses as "restatement of annual or interim of financial statements in 2007" and "fire of CPA of audited company in 2007".we collect relative corporate government materials for 461 listed companies of Shang Hai Stock exchange by ourselves. We employ the tool of "factors analyses" for Economtrics to choose ten indexes from many indexes, by using the ten explanation variables, we regress its relation between "internal control material weaknesses and the ten independent variables, at the same, we do the study of marginal analyses, and draw the conclusion that they are more important to internal control material weaknesses than other seven variables.Though analyses and hypotheses tests, we draw the four conclusions:1 . Internal control material weaknesses are negative correlative to firm size\adjusted management fee and stock concentration degree2. Internal control in State-owed firms is better than Non- State-owed firms. 3. Return on equity\ ratio of sale increase and adjusted management fee are much better in explaining internal control than other seven variables.Based on analyses of Logistic model, the forth conclusion is:4. Because debt contracts and bankruptcy risks of listed company can not play relative important role in internal control, listed companies peter to the requirements of institutions at the expense of internal control.We also put forth five suggestions based on our analyses, four items out of five are about internal control, the forth is about internal control disclosure and the uses. As following:1. built and consummate firms bankruptcy system, deepen firm management staffs bankruptcy cost, throw the precedent of State-owed firms that can not be bankrupt.2. Reform management compensation, suggest that government background should be cancelled, which motivate firm management to strongthen internal control3. The examination of management compensation plan should be carried out from different points, by doing, which prevent from taking happen of internal control material weaknesses.4. Reform the criterions of re-financing of listed companies, the criterion should be a combination of long-time benefit and short-time.5. Disclosure policies of internal control, including assurance reporting from CPA, should be strict than before.At last, we point out our creative points and many drawbacks and limitations in our research. They are as following:Our creative points in our research are: 1. In methodology, we employ internal control material weaknesses as explained variables rather than independent variables of other factors, which method can expand our horizon to insight into efficacy of internal control. 2. we provide new evidences for relevant theories from the view of internal control.Our drawbacks and limitations in our research are:1. we simply use one-year data to test our hypotheses, on contrary, other researches from abroad use time serial more then three years, so our results may be change if use time serial.2. we subjectively define internal control material weaknesses as two types, which lead to our analyses subjective.3. According to systematic theory, internal control relate to institutions in which firms operate, but we ignore the important variables due to data limitation.