Study On The Relationship Between The Defects Disclosure Of Internal Control And The Cost Of Capital

In2012, the disclosure of China’s internal control information is step into the stage of mandatory disclosure, which means that the information disclosure of China’s internal control is being paid more and more attention. All companies listed in SSE and SZSE and part of the enterprise of small and medium-sized plate are asked mandatory disclosure of internal control report. In this way, the internal control information as an important indicator for investors were included in the analysis of listed companies’ information, the disclosure is becoming the emphases indicator,to which the investors and creditors will pay more attention. This article is based on China’s capital market, using the principal-agent theory, asymmetric information theory and signal transmission theory and using the method of combining standardized research and empirical research, discussed if the defects’disclosure of internal control have influence on the cost of capital.This paper use GGM model and PEG model to measure the cost of equity capital and use the ratio of interest expense and total debt to measure the cost of debt capital. Otherwise, the explanatory variables includes the internal control deficiencies, the cross multiply items of internal control deficiences and mandatory disclosure and the cross multiply of internal control deficiences and state-owned companies, what’s more, this paper also control the matters that affect cost of capital, such as company size, sales growth, account Municipal ratio, beta, and interest coverage. On the basis of these, using regression analysis, univariate analysis and other methods, this paper have a deep analyze on how internal control deficiencies’disclosure impact the cost of capital at various angles and. The conclusion suggest that w the disclosure of internal control deficiencies will be accompanied by a rise in the cost of capital.However, in the innovative research of this paper, whether the disclosure of the company’s internal information control is mandatory disclosed and whether the company is state-owned enterprises were classified, and then this paper use linear regression analysis on the cross multiply item of internal control deficiencies and mandatory disclosure and the cross multiply item of internal control deficiencies and state-owned enterprises, the conclusion has not been linear relationship. Then, the paper classified the type of internal control deficiencies, and had a univariate analysis on three types of internal control deficiences. But the conclusion is not significant.