The Study Of The Internal Control Quality And Corporate Investment Behavior

Since the reform and opening up, China’s economy has maintained rapid growth,mainly because one of the "Troika" of economic growth in investment played a huge role.But due to the resources and the influence of other factors such as consumer demand, theinvestment efficiency in a lot of enterprises is not high, the phenomenon such asoverheated investment, which has brought lots of dangers to China’s economicdevelopment. The issue of inefficient investment has become the focus of the researches ofacademia and practice circle. With the introduction of Basic Norms of Enterprise InternalControl and Supporting Guidelines for Internal Control, investors pay more and moreattention to internal control. Based on the study of internal control and corporateinvestment behavior has common theoretical basis, therefore, this paper is aimed atrevealing the theoretical link between internal control and inefficient investment, andempirically testing whether internal control quality can exercise restraints upon corporateinefficient investment and whether it will affect the sensitivity of investment spending andinvestment opportunity.This paper selects the data from all the A-share listed companies in Shenzhen andShanghai from2009to2011as samples and carries out empirical study on them,respectively verifying the effects internal control quality has on corporate investment andthe sensitivity of investment spending and investment opportunity. It further studies theinfluences the five factors of internal control have on corporate investment behavior andthe impacts the internal control quality exerts on corporate investment behavior in case ofdifferent natures of property rights.The empirical results show that:（1）Underinvestment is prevailing in all the A-sharelisted companies as a whole in Shanghai and Shenzhen;（2） Internal control quality hassignificant inhibitory effect on enterprises’inefficient investment behaviors;（3） Internalcontrol quality can have significantly positive impacts on the sensitivity of corporate investment spending and investment opportunities;（4） Among the five elements ofinternal control, internal environment, control activities and information andcommunication respectively bring dramatic negative effect on corporate inefficientinvestment and have significantly positive impacts on the sensitivity of investmentspending and investment opportunity, while the influences of the other two elements of riskassessment and internal supervision on corporate inefficient investments and the sensitivityof investment spending and investment opportunity are not significant;（5）With differentnatures of property rights, the inefficient investments of state-owned enterprises andprivate enterprises differ a lot. The quality of internal control can significantly restrain theinefficient investment of private enterprises, while have a negative but not significantimpact on the inefficient investment of state-owned enterprises. The positive effects of theinternal control quality on the sensitivity of investment spending and investmentopportunity can only be well presented in private enterprises.