Research Into The Influence Of Control Rights Allocation On Internal Control Effectiveness For Listed Companies In China

With the development of economic globalization, enterprises are facing all kinds of opportunities and challenges, in order to cope with the risks may occur at any time, enterprises should strengthen the construction of internal control. The Chinese government has introduced a number of policies to guide and supervise the enterprise internal control system. However, there are many factors that affect the effectiveness of internal control, this article studied the effectiveness of internal control from the point of control rights allocation. Based on theoretical analysis and empirical test, we compared the effectiveness of internal control on different control levels and under different control mode, and finally give some effective suggestions to enhance the internal control.In the part of theory, firstly this paper presents the basic theory for research. The theory of property right and incomplete contract is the foundation of control rights, shareholders have the ultimate control right. The principal-agent theory affects the control right allocation and the internal control. The control right is allocated to the shareholders, board of directors and managers, the agency problems will affect the effectiveness of internal control. The internal control system is a supplement of the incomplete contract, it balances the rights, responsibilities and obligations between different control body, when the control right in different control body is not balanced, the internal control may fail. Secondly, through the summary of previous literature, this paper defines the control right and delimits the measure of control right on different levels, and also presents the definition of the effectiveness of internal control. The control right is a kind of right that can influence business management, it measured by board seats. In addition, we measured the effectiveness of internal control by its goals. Compared to other objectives, strategic goals is more difficult to achieve, so we select four goals that the efficiency of operating, the assets security, the reliability of financial reporting and the Legitimacy of business as index to measure the effectiveness of internal control. Finally, we analyze how the allocation of control rights influence of the effectiveness of internal, prepared for the next empirical analysis.In the part of empirical, based on the theoretical analysis, we put forward9hypothesis and an empirical model. We believe that the concentration and balance degree of equity is positively related with the effectiveness of internal control, but the nature of the actual controller in negative correlation to the effectiveness of internal control; the number of directors and the proportion of independent directors have a negative effect on the effectiveness of internal control, the number of directors that affected by the shareholders or managers have a positive effect; the executive manager appointed by the first shareholder or hold a concurrent post as a chairman will have a negative impact. Secondly, we figure out the internal control comprehensive score for each of the company by the principal component analysis method, and then put the sample data into multiple linear regression models. We found that the nature of the actual controller, the size of the board of directors and the characteristics of executive manager did not pass the significance test, and explained it. Finally, compared the mean score of internal control in different modes, we conclude that the internal control will more effective if the first shareholder hold more shares.According to the empirical results; we give some suggestions, first of all, we think the enterprises should maintain a certain degree of equity concentration and restriction. Secondly, the independent director system in China does not play its due role; we should intensify the supervision of independent directors. Finally, the board chairman and the general manager should not be the same person.The contribution of this paper is that we systematically analyze the effectiveness of internal control in the point of control rights, and presents the effectiveness of internal control in different control modes; we find that if the directors in a state of independent, the internal control is worse. However, for the limitation of the collected data, we can take more indexes to measure the effectiveness of internal control, and we can also choose other indicators to evaluate the effectiveness of internal control, not just compared the mean score of internal control.