Interaction Of Internal Defect Disclosure And Corporate Governance Of Listed Companies Controlled

Many domestic and foreign business failure or financial fraud, exposing internal control can not play its due role. Along with China’s" Enterprise Internal Control Basic Standard" and" Enterprise Internal Control Guidelines" issued in succession, evaluation of the effectiveness of internal controls caused widespread concern. More and more scholars began to study the steering deficiencies in internal control perspective, especially in the field of the impact factors causing internal control deficiencies disclosed achieving certain results, but there are few scholars studying interaction between defects disclosure and corporate governance of listed companies. As an opportunity, this paper studies the factors causing internal control deficiencies and the changes of corporate governance effect after internal control deficiencies exposure, from the shareholding structure, board structure, the structure of the board of supervisors, executives incentive. In this paper, in addition to reviewing the classic literature on corporate governance and internal controls related to significant deficiencies and analysis the principal-agent theory, signaling theory and stakeholder theory, we use the empirical research methods to do the following two aspects of work:First, The impact of corporate governance on internal control deficiencies disclosed is examined. With the main board listed companies disclosing internal control deficiencies as samples, we use the method of orderly Logistic regression to test. The study found that if the largest shareholder is state, the company is more likely disclosing internal control deficiencies; The higher the equity restriction exists in companies, the less internal control deficiencies exist. The more the number of board of directors is, the more internal control deficiencies exist in the company. However, other corporate governance variables do not pass the test.Second, this paper aims to investigate the changes of company’s management after the disclosure of internal control deficiencies. With listed companies exposed material weakness in shenzhen stock exchange in2007-2008as a sample, this paper aims to exam the changes of corporate governance effects after before and after the exposure to the corporate governance effects using" t test of matching sample method". Research shows that:after the disclosure of material weakness, the board size tends to significantly streamline; the executive pay is increased significantly. Then the linear regression is used to verify that the degree of the material weakness disclosure is negatively correlated with board size but not significantly and the degree of the material weakness disclosure is positively correlated with the executive pay significantly.