Research On The Inhibition Effect Internal Control Have On External Guarantee

The core of internal control is the control of risk, its goal is to assure the safety ofenterprise’s assets, prevent and reduce risks, improve business efficiency and effectreasonably. But the company’s external guarantee behavior has serious harm to thecompany’s assets safety, makes the company faces a lot of contingent liability risk, and thisis against the objectives of internal control. Can internal control reduce the risk of externalguarantee? This paper intends to explore the problem.This paper will research internal control and external guarantee together, check thecorrelation of internal control and external guarantee, and use control index to measure thequality of internal control. This paper aimed to reveal the relationship between internalcontrol and external guarantee, and provides a new angle of view for external guaranteeresearch, make the research of external guarantee more systematized; at the same time,check the quality of the internal control and the implementation effect, in order to promotethe improvement of the internal control theory and the practice of internal control.In this paper, we did descriptive statistics of the listed company’s external guaranteebehaviors, and empirically analyze the relation between internal control and different typesof external guarantees, at the same time to test whether state-owned holding has influenceon this relation, we also distinguish between state-owned and non-state-owned holding,divided into two groups of the sample companies for regression analysis. We also checkthe relations of external guarantee with other internal governance structure factors.We found that the listed company’s internal control index has significant negativecorrelation with external guarantee, internal control has inhibitory effect on externalguarantee, and the inhibitory effect is significantly better on related-party guarantee thanon non-affiliated guarantee. And this negative correlation is different in the state-ownedand non-state-owned companies, the inhibitory effect is more significant in state-ownedcompanies. This paper also found that, the company scale, asset liability ratio, the netinterest rate of the assets have significant positive correlation with external guarantee;share ratio of the largest shareholder, equity balance degree have significant negativecorrelation with external guarantee; The proportions of the independent directors also has negative correlation with external guarantee, but the result was not significant.