Internal Control、Managerial Power And Efficiency Of Investment

Investment, as one of the major forces to promote economic growth, has made significant contributionfor the rapid economic development of our country. However, many industries and regions emergeinvestment efficiency is not high, the overheated investment phenomenon due to the impact of factors suchas resources and consumer demand. Non-efficient investment behavior brings risks to China’s economicdevelopment and it seriously affected the effective use of capital. Non-efficiency investment has becomeone of the focuses of the research of academics and practitioners. With the introduction of “our internalcontrol basic norms” and “internal controls supporting the guidelines”, the emphasis on internal control isincreasing in our country. Because of the many companies that exist within larger managerial power, themanagement may use the power for private benefits, thus affecting the efficiency of investment andenterprise value. However, the domestic research literature on internal control, managerial power andnon-efficiency is less. Therefore, this paper aims to reveal the connection between internal control andnon-efficient investments and empirical test if internal control can suppress the powers of management toeffectively inhibit the non-efficient investment behavior.This paper firstly reviewed the domestic and foreign literatures about internal control, managerialpower and efficiency of investment. Then based on the asymmetric information theory and principal-agenttheory, manager theory, I proposed some research hypothesizes and established appropriate models to testthem. The sample including Shenzhen and Shanghai A-share listed firms in the time period2008to2010,combined with our unique research background, examining the relationship of internal control, managerialpower and investment efficiency. By examining the internal control mitigation role of managerial power,further validation of high-quality internal control of the positive role of business investment efficiency,further validation of the economic consequences of the internal controls.The empirical results indicated that, firstly, the greater managerial power will produce the moreserious non-efficiency investments. Managerial power will be expressed as two hats-one equity checks andbalances (the first largest shareholding ratio and divided by2-10shareholding ratio), the size of the board.Secondly, compared with the state-owned holding enterprises, non-state-owned holding enterprises aremore likely to take advantage of managerial power, resulting in non-efficiency investments. Thirdly, qualityof internal controls and non-efficient investments into negative correlation, that good internal qualitycontrol will reduce the phenomenon of over-investment (under-investment), better allocation of capitalinvestment more efficient. Finally, managerial power will effect inefficient investment smaller with thehigher the quality of internal control.Internal control can be learned through the inhibition of managerialpower to affect non-efficiency investment by the cross regression between the internal control andmanagement of power and efficiency of investment.