An Empirical Study Of Corporate Governance Defects And Internal Controls

In recent years, corporate governance and internal control convergence have been theresearch trends in United States, Britain and China. With China Southern Airlines’ hugeloss and other internal control failure cases, causing a sensation in the capital market andleading scholars to focus on internal control deficiencies. As the regulatory body, CSRC isalso aware of the seriousness of the problem and the key reason for the failure of internalcontrols. Corporate governance rectification has been carried out. Five ministries havejointly issued the " Basic Standards for Enterprise Internal Control " and " EnterpriseInternal Control Guidelines " to improve the country ’s system of internal control standardsin2008and2010.Thus,2012should be the best year of the construction of internal controlfor listed companies, and also should be the best reflects of internal controls constructionstatus. More existing literature focused on deficiencies in internal control disclosure issues,the market’s reaction and any other negative economic consequences, but little related tothe positive economic consequences of this dynamic process.In this paper, corporate governance and internal control deficiencies related issueswere discussed from both theoretical and empirical aspects. Theoretical part includescorporate governance, internal control deficiencies and the effectiveness of internalcontrols’ literature review from domestic to international, as well as our specialinstitutional context which this article is based and the theoretical basis for the analysis. Inempirical part, firstly filter out the existence of a listed companies’ internal controldeficiencies between2008-2009, and select2007-2012as the observation window, aroundthe dynamic process of internal defects disclosure and its rectification and corporategovernance, examine the relationship between corporate governance and internal controldefects, and whether the corporate governance’s improvement can make the effectivenessof internal control improve.The empirical results show that corporate governance questions of listed companieswill result in internal control deficiencies, and the internal control effectiveness improvedafter these defects have been inhibited. This shows that the economic consequences of theinternal control standards system are positive. Based on this, the paper propose thatpushing institutional investors to participate in corporate governance, the establishment oflong-term incentive effects for independent directors, merit-based selection system ofindependent directors and board of supervisors and strengthening the autonomy of internal controls’ design and operation. In order to improve the governance structure of China’slisted companies, and improve the effectiveness of internal control.