Management’s And Auditors’ Report On Internal Control And Equity Cost Of Capital

At the beginning of this century, people all over the world paid attention to theinternal control of enterprise management because of a series of financial scandalscame out.From the cases such as false statement and price manipulation case ofYinGuangXia, eastern electronic, YiAn technology, JiaBao industry, managementauthorities could find out the weakness of the current internal control system. For thisreason，the authorities have issued a series of papers to strength the internal control ofenterprises. In2010, our country issued "guidance about Enterprise internal control ",the guidelines required the companies listed in shanghai main board or shenzhen mainboard should disclose management’s reports on internal controls and auditors’ reporton internal control. The auditors’ report is issued by the accounting firm who retainedby the company. At present, in the time of this study is from the management disclosereport on internal control by voluntary stage to mandatory stage.In the disclosure of the environment, whether the disclosure of internal controlreport and audit report will affect the company’s equity cost of capital? In order toprovide theoretical support for this hypothesis, this article first through theinformation transmission theory, signaling theory, efficient market hypothesis, and onthe impact of disclosure of internal control report on equity capital cost mechanism,analysis their relationship between them.Then, I have collected A-shares listingCorporation’s internal control self-assessment report and audit report from2009to2011. I statistical and analysis the internal control reports over the past few years. Iuse GLS model to calculate the cost of equity capital. By building linear regressionmodel to test the relationship between the internal control report and the equity capitalcost.The empirical results show that: Enterprises reduce the equity capital costthough disclosing the report of internal control and audit report. From the companieswhich disclosure the report of internal control, the equity capital cost will be lower byfurthering disclose the report of internal control. Management’s and auditors’ reporton internal control is recognized by the capital market. As mandatory disclosurepolicies, stakeholders are no longer a simple focus on whether to disclose internalcontrol report, but pay more attention to disclose the essence of the connotation.Finally, this article from the government, the listing Corporation and the investor’spoint of view, put forward a series of proposals to regulate the internal control information disclosure behavior, ensure that the disclosure of internal control reportfully, to promote the stock market run more efficiently.