Research On Impact Internal Control Information Disclosure Made On Earnings Management Of Listed Companies In China

With the exposure of numerous financial scandals, more and more investors andgovernment departments have realized the close relation between internal controlinformation disclosure and earnings management. Detailed and specified internalcontrol information disclosure could improve the reliability of financial reports andreduce the level of fraudulent practices. In recent years, supervision departments inour country, at the level of laws and regulations, pay significant attention on internalcontrol information disclosure. The promulgation of “Enterprise Internal ControlStandards” and “Enterprise Internal Control Supporting Guidelines” symbolized thatChina has begun to enter the excessive from internal control information disclosuresystem required by the guidance to the mandatory. Therefore, referring to the relatedguideline, we conduct an in-depth study of the internal control information disclosuremechanism and explore its impact on listing corporation’s earnings management.On the basis of the domestic and foreign research results, this paper used theprincipal-agent theory and asymmetric information theory to analyze the relationshipbetween internal control information disclosure and earnings management, and thenput forward the research hypothesis. In the process of empirical research, we selected2010and2011annual report of listed companies issuing A-shares on Shanghai andShenzhen Stock Exchanges as the research sample, used the modified Jones model tocalculate the degree of earnings management. We also established an internal controlinformation disclosure evaluation system to calculate the internal control disclosureindex. Besides, we used descriptive statistics, correlation analysis, multiple regressionanalysis and stability test and other empirical methods to explore the relationshipbetween internal control information disclosure and earnings management.The results of this study show that:(1) there is a significant negative relationshipbetween internal control information disclosure quality and earnings managementdegree, that is to say, firms with higher internal control information disclosure exposeto lower level of earnings management;(2) there is a significant positive relationshipbetween internal control weaknesses disclosure and earnings management degree, thatmeans compared with the listing corporation which not disclosure internal controlweaknesses, firms with internal control weaknesses disclosure expose to higher levelof earnings management.(3) there is a significant negative relationship between internal control self-evaluation report disclosure and earnings management degree,that means compared with the listing corporation which not disclosure internal controlself evaluation report, firms with internal control self-evaluation report disclosureexpose to lower level of earnings management.