The Quality Of Internal Control And The Value Relevance Of Earnings

Accounting earnings became more and more important since the development of capital market. The repeated eruption of financial crisis and company fraud made the people focus on the usefulness of the accounting earnings. Previous researches found that the durative and the reliability of the accounting earnings had influence on the value relevance of earnings. Because two of the targets of internal control is to ensure the durative and the reliability of the accounting earnings, it’s valuable to see if the quality of internal control has influence on the value relevance of earnings.Since the issue of "Implementation Guidelines for Enterprise Internal Control" in2010, internal Control became the focus of academic researchers and the researches on internal control became more and more. Previous researches usually focused on the disclosure of internal control information and the economic consequence in the term of internal control deficiency. There is little articles on the relationship between the quality of internal control and the value relevance of earnings. This paper designed the standard of internal control quality and rates the sample companies according to the standard. On the basis of that, this paper tries to consider the relationship of internal control and the value relevance of earnings.This paper can be divided to the theoretical part and empirical part.In the part of theoretical analysis, on the basis of reviewing some classical theories and literatures, this paper put forward the route of the value relevance of earnings influenced by internal control quality, providing the strong support for the empirical research of this paper.In the part of empirical research, according to the hypothesis, this paper carried out the research in the term of single variable analysis, several variable regression and steady research. The result of empirical research shows that the quality of internal control has influence on the value relevance of earnings and there is positive relationship between them. What’s more, the research of return model shows that only the coefficient of the unanticipated earnings is significantly positive, but the reason still needs to be studied in the future.The innovation of this paper mainly reflects in the three followings:1. Put forward the route of the value relevance of earnings influenced by internal control quality, providing the theoretical support for the empirical research of this paper.2. Design the standard of internal control quality. This paper divided the sample into three groups including high group, middle group and low group according to the standard, and proved the hypothesis financially.3. This paper also found that the quality of internal control plays the different roles in the anticipated earnings and unanticipated earnings.