The Impact Of Mandatory Internal Control Disclosure On Earnings Management

With the promulgation and implementation of "basic norms of internal control","internal control guidelines" and other policies and regulations, the norms of internalcontrol system in China has been established. The disclosure of internal controlinformation has turned from voluntary to mandatory gradually. This paper studies onwhether the mandatory disclosure of internal controls helps to reduce the level ofearnings management of listed companies.This paper summarizes the results of the predecessors about the informationdisclosure of internal control, earnings management, the relationship between them andso on. Based on this, the paper describes the information disclosure of internal control athome and abroad, and combines normative analysis and empirical test on study. Thepart of normative analysis uses the principal-agent theory, asymmetric informationtheory and signal transmission theory to analyze the influence of the disclosure ofinternal control information to the earnings management of listed companies. It alsocompares the influence of mandatory disclosure of internal control information and thatof voluntary disclosure on the earnings management of listed companies. Based on this,the part presents the research hypotheses. The part of empirical test uses the financialreport data of listed companies this year and last year as sample, which were forced todisclose the information of the internal control firstly in2011or in2012. This part usesdescriptive statistics, correlation analysis and regression analysis to test the hypotheses.It draws the conclusion that the implementation of mandatory information disclosure ofinternal control policy in our country inhibits the earnings management of listedcompanies significantly, including positive and negative earnings management. Finally,this paper puts forward some suggestions on the policies of our country. Our countryshould take measures to improve the quality of information disclosure of internalcontrol, while combine the mandatory disclosure and voluntary disclosure.