A Study On The Correlation Between Internal Control Quality And Inefficient Investment In Private Listed Companies

As one of the three major financial decision of the enterprise, investment decision is not only related to the enterprise value and increasing future cash flow, and also is the backbone of promoting national economic growth. In the real capital market, where is Information asymmetry and agency conflict flood, enterprise is very difficult to make the most effective investment decision, which will therefore become the research and attention focus of many scholars and enterprises.After a series of financial scandals in listed companies, such as Enron and WorldCom, dealt a hard blow to investor confidence, in 2002 the United States enacted the Sarbanes-Oxley Act, which greatly drew people’s attention to the importance of internal control both in practioners and theorists home and abroad. And internal control becomes a leading issue of corporate management all over the world. Under the current background, studying the efficiency of a firm’s investment from the perspective of internal control would be a desirable and worthy exploration. However, our literature review shows that hardly any literature offers the evidence of the correlations between internal control and inefficiency investment behaviour. So this paper attempts to find out how internal control suppresses enterprises inefficiency investment.Firstly, the paper reviewed the relevant domestic and foreign literature of inefficiency investment and internal control quality, and defined the private enterprise, internal control, inefficiency investment concept, and analysed the principal-agent theory, financing constraints theory, then elaborated the private enterprise internal control quality level of inefficiency rate of investment mechanism. Richardson(2006) is used to measure the inefficiency investment. Listed companies disclosing about internal control information is used to measure the quality of internal control level. Then the paper established a regression model. The research concluded that the high level internal control quality can inhibit the enterprises inefficiency investment in a certain extent, and put forward the feasible suggestions on policies for private listing Corporation.