The Combined Research Of Equity Incentive And Internal Control Quality Of The Listed Companies In China

In recent years, the cases of failure of companies’internal controls are numerous, such as foreign bankruptcy of Enron and Lehman Brothers, the domestic China Aviation Oil event, China Shipping funding scandal, China Ocean Shipping Company ST event. These cases give people a profound warning, which is how to better strengthen internal control, so as to effectively reduce business risk. From the domestic and foreign perspective, the establishment of internal control standards becomes more perfect, whether it is the United Sarbanes-Oxley Act and the COSO Enterprise Risk Management Framework, or our country Enterprise Internal Control Basic Norms and its supporting guidelines. However, the promulgation of the regulations is only an external pressure on the enterprises to urge them to improve internal control quality, while frequently ignoring their own initiative. At the same time, theorists are constantly explore ways to improve internal control quality although researches have shown that corporate governance characteristics, audit committee and other factors effect on internal control quality, but most of the studies ignore the importance of internal control implementation of the main body "people".Since the nineteen seventies, equity incentive rapidly developed in the United States. The implementation of equity incentive relatively late in our country, the relevant authorities promulgated "The Securities Law","The Company Law","The Measures for the Administration of Equity Incentive Plans of Listed Companies " and other laws and regulations in2006, which provide legal basics and guarantees for the implementation of equity incentive. It has obtained the certain effect in stimulating economic activity, an important reason is that equity incentives govern corporation from the perspective of "people ".The implementation of equity incentive to managers of self-interests is associated with corporate interests, making internal control quality produced two different effects:on the one hand, managers will try to avoid internal control deficiencies which have a negative impact on equity value, incentivizing managers to improve internal control quality; On the other hand, managers will have a greater earning motive of maximizing the value of equity holdings, while lower internal control quality facilitate earnings management for managers, leading managers to tend to lower internal control quality. In the end how equity incentive affects internal control quality, which is very important to test the effect of equity incentive implementation and to promote the implementation of internal control body "people" from passive to active implementation, thereby improving internal control quality.At first, this article analyzed and summarized the domestic and foreign equity incentive and the internal control quality research using the method of analysis in the literature, then expounded the logic relationship between equity incentive and internal control quality by standard research methods in theory, followed by a share main-board companies listed in Shanghai and Shenzhen securities exchange in2011as samples, using the method of statistical analysis to expand the empirical research, found that equity incentive indeed help to improve internal quality control, finally, summarize the conclusions and put forward related suggestions. Except for the first part of the introduction, other contents of this paper are as follows:The second part of the literature review:this section introduces present domestic and foreign research situation about the effect of equity incentive implementation, the factors influencing internal control quality, the combined research of equity incentive and internal control quality, and finally are reviewed.The third part of the concept definition and the theoretical analysis:this section describes the definition of equity incentives and principal pattern at first, then introduces Principal-agent Theory, Information Asymmetric Theory and Signaling Theory, finally puts forward the hypothesis through the analysis of the theories.The fourth part of the construction of the internal control evaluation system: this section elaborates design principles of quality evaluation system, the selection of specific index and calculation methods.The fifth part of the empirical research:this section introduces the selection of samples and data sources, then establishes research models and carries on the explanation of variables, finally goes on the empirical analysis.The sixth part of the conclusions and recommendations:this section summarizes the research conclusions based on the empirical research and puts forward relative policy recommendations.The innovation of this paper is that:first, the selected topic is novel, from the perspective of equity incentive effect on internal controls quality; secondly, the stock option is taken into account, enriching the measure of equity incentive; third, through constructing of evaluation system of internal control quality, it measures internal control quality of the listed companies in China comprehensively and reasonably. Because multiple indicators of the evaluation system of internal control quality as well as control variables need to manually collect, in the constraints of capacity and time, I did not collect data for empirical analysis for many years, resulting in the interpretation of the model is not very high. This is the shortcomings of this study.