Internal Control Effectiveness, Earnings Quality And Corporate Debt Maturity

As an important content of the debt contract, the longer the debt maturity is, thegreater the chance of the debtor default will be, and it also means the higher uncertaintydegree faced by the creditors is, the greater the risk will be. Therefore, long-termcreditors to consider when making credit decisions on many factors, the level of qualityof the debtor earnings information is one of the important factors to consider, If thegreater the degree of enterprise surplus management is, the greater the fluctuation rangeof future accounting surplus and the greater the uncertainty when creditors forecasts theenterprise future cash flow will be, all of which indicates that the behavior of anenterprise’s earnings management would increase the information risk while the creditorare making their credit decisions. Therefore, the quality of surplus information plays animportant role in the creditor’s credit decisions-making. The internal control, to acertain extent, is able to inhibit the earnings management behavior of listed companiesand to improve the quality of the company’s surplus. Assuming that creditors couldproperly observe the degree of effectiveness of the internal control in listed companies,for the company which holds higher effectiveness of internal control, will creditors easevigilance when they identify and judge the company’s earnings quality, so as to makethe recognition capability decline?In this paper, by using2009-2011Shanghai and Shenzhen A-share listedcompanies in China as samples and adopting the empirical research method, results areas follows: The higher the effectiveness of internal control is, the higher the earningsquality of listed companies will be; the higher the earnings quality is, the greater theproportion of long-term liabilities of listed companies will be. However, with theimprovement of internal control effectiveness of listed companies, the capability ofcreditors to identify the earnings quality of listed companies is decreasing when theymake long-term debt decisions, which explains that the effectiveness of internal controland quality of surplus of listed companies have substitution effect while influencingcreditor’s credit decisions-making. Further studies present that as the company propertyrights and the process of marketization of areas located by listed companies vary, theability of creditors to identify the quality of enterprise surplus varies greatly when theymake long-term debt decisions.Through investigating and analyzing whether the high-low effectiveness of internalcontrol could affect the degree of attention paid to the quality of enterprise surplus when creditors make credit decisions, the paper deepens our understanding of the debtcontract theory. And then, by studying the impact of enterprise property rights andregional marketization on creditors’ credit decision-making, the writer has expanded theresearch field of the property right system in transitional economy countries, whichhelps to understand the influence path and degree of property rights system and theprocess of marketization in these countries.