Nature Of Property Right,Internal Control And Corporate Debt Financing

As we all know, the21st century is an era of information technology; the information economy and the knowledge-driven economy promotes human life and the growing trend towards the harmonious and sustainable development of society. However, our information society has also exposed some problems, such as information overload, the lack of information, and information asymmetry; these situations have occurred in the field of economics and accounting. Information Economics believes that the essence of a market economy is to use price signals to configure social resources and human resources around the price game and that information asymmetry leads to reduced efficiency of resource allocation and a negative impact on social fairness (Marks, Stephen,2009). In capital markets, in order to protect the interests of investors, regulators require listed companies to disclose financial reports and produce an audit opinion. However, the Enron bankruptcy of2001, led to deep consideration of the authenticity and validity of the accounting information being disclosed worldwide.In order to enhance the authenticity and validity of accounting information and provide investors with more comprehensive information for making effective decisions, government legislation on internal control is quickly being put on the agenda. After the Enron scandal broke out, the U.S. government soon launched the "Sarbanes-Oxley Act," the provisions of public companies disclose the effectiveness of internal control reports and opinions issued by the auditor. In2008, China’s Ministry of Finance, China Insurance Regulatory Commission, the Audit Commission, the CBRC, and CSRC issued the "Basic Norms of Internal Control", requiring listed companies to perform basic norms of disclosure of internal control, self-assessment reports, and hire intermediaries for the effectiveness of internal controls audits. In2010five ministries issued "Enterprise Internal Control Guidelines" on the implementation of internal control and made detailed requirements,"The Basic Norms", and the introduction of "Supporting Guidelines". This marks the Chinese system of internal control practices as being basically completed. It is easy to see that the relevant legal provisions increasingly stresses strengthening the internal control disclosure of information in order to enhance the effectiveness of internal control audit authenticity and the validity of accounting information. This provides more comprehensive business critical information for the public and thereby aids investors’ decisions in capital markets.How to effectively improve the efficiency of capital markets through information disclosure of internal controls to protect the interests of investors has been practitioners and theorists topic of concern. But from the existing relevant literature, we see more of a necessity and the cost of internal control information, research status factors and disclosure, internal controls, and disclosure of much literature of economic consequence. How do internal disclosure controls affect currently listed companies? Are there any differences in the nature of ownership of listed companies on different levels and in the degree of influence? Is there an important relationship between the quality of internal control and corporate debt financing? These issues must be examined for improving internal control relevant to the construction of our country, for protecting the interests of investors, for optimizing allocation, and for enhancing companies’ performance. This has very important theoretical and practical significance. Based on this, in order to investigate the nature of property as an internal control perspective of the relationship between quality and corporate debt financing, empirical data was used to analyze the affect of the quality of internal controls for different property-scale nature of companies’debt financing and debt financing costs incurred.Debt financing refers to a company in the debt market’s ability to obtain sufficient debt financing and the ability to obtain the lowest cost of debt financing, the performance of the scale of debt financing costs and debt financing on two levels. With the system for continuous improvement and development of the capital market, more and more standardized ways of rational allocation of resources to some extent alleviates state-owned enterprises from enjoy "soft budget constraints" and causes private enterprises to suffere "credit discrimination". A Corporate financing scale and more attention given to financing costs, gains greater scale debt financing and helps to ease financing constraints. This provides more profitable opportunities while obtaining lower costs of debt financing to help reduce operating costs and improve market competitiveness. As an important means of business financing, debt financing issues related to the management and long-term development of enterprises and debt financing for enterprises has an important role to play in reducing agency costs, reducing job consumption, and encouraging managers to work hard to curb excessive investment and the protection of investors’ interest (Wang Hui,2003). How to get more debt financing with lower debt financing costs become the focus of practitioners and theorists in capital markets. As a listed company, debt financing problems affect two important mechanisms of internal control and how the nature of property rights in the end affect the company’s debt financing efficiency. Exploring these issues, the game of clarifying the relationships between parties and the debt market, the establishment of guidelines for the debt market mechanisms to ease and improve the efficiency of funding mechanisms has important theoretical and practical significance.As information economics says, information disclosure is the core mechanism of the market economy. Internal control reports issued by enterprises are actually a case of the exercise of their fiduciary duty to disclose to public management. China’s "Internal Control Basic Standard" requires companies to establish and implement effective internal controls that should include internal environment, risk assessment, control activities, information and communication, and the five elements of internal oversight. First, the quality of listed companies must improve internal controls, and further improve the corporate governance structure, strengthen risk management and control, while improving the efficiency of business operations, so that the overall value of the enterprise rises. This makes the enterprise more attractive to investors, and enables investors to obtain more debt financing and lower debt financing costs. Second, the internal control of listed companies improves the quality and reduces the information asymmetry between financial companies and investors. This allows investors to react according to the internal control of information in all aspects of the business to predict the company’s future operating performance, risk profile, as well as the authenticity of the company’s financial statements. Investors then can make the necessary relevant investment decisions. Internal controls for high-quality companies are undoubtedly important, because they enable investors to get more debt financing and lower debt financing costs.Based on the above analysis and based on China’s capital market situation, we propose the following hypothesis1:Under other certain conditions, the quality of the internal controls of listed companies have greater debt financing scale than the poor quality of internal controls of listed companies; and research assumption2: Under other certain conditions, good quality of internal controls of listed companies have lower debt financing costs than the poor quality of the internal controls of other listed companies. Joining the nature of the perspective of property rights, further analysis of the different nature of property rights in the internal controls of listed companies affect the company’s debt to finance the difference. This explores the nature of the internal controls and ownership of the combined effect of the corporate debt financing mechanism. We find two paths, one direct effect on the nature of property debt financing, due to China’s capital market being dominated by state-owned enterprises and the advantages arising from the "halo effect", investors likely will support state-owned enterprises and policies. Implicitly guaranteeing contact up and then the optimistic estimate default risk of its bonds, loans, etc., thus requiring a lower risk compensation rate. This can enable more debt financing and a lower cost of debt financing. Another way is the nature of the indirect effects on company property debt financing through the financial characteristics of the nature of property rights. The impact of the credit rating and political association with the banking association influences investors’ decisions, which is the financial characteristics of tangible assets ratio. Tangible assets of state-owned enterprises have more to offer and have more kinds of debt financing guarantees or collateral to obtain more debt financing. Based on the above analysis and based on China’s capital market situation, we propose the following hypothesis3:Compared to non-state-owned enterprises, affecting the quality of internal controls, debt financing costs of state-owned enterprises are more significant; and research hypothesis4:Compared to state-owned enterprises, the internal impact of debt financing scale quality control for non-state-owned enterprises is more significant.How to make internal control guidelines to play the role of corporate debt financing better, we propose the following four proposals:First, improve the quality of the internal controls reporting disclosure mechanism to further standardize information disclosure of internal controls and regulatory policies, optimize the allocation of social resources, promote specifications, stability and the prosperity of the capital market; second, encourage more companies to disclose internal quality control reports and guide a correct view of listed companies and the importance of internal control information disclosure of internal control. This may enhance their intrinsic motivation to disclose the internal control quality of the report; third, government departments should gradually improve financial market reforms in order to match the debt financing system, this includes the abolition of special preferential treatment for state-owned enterprises and other policies and continuing to reduce the "soft budget constraint" and "implicit government guarantee". This will encourage financial institutions to develop more conducive with respect to private enterprise debt financing products and the channels for private enterprises will have more debt financing options; fourth, in-depth market-oriented reforms and promoting the interest rate market to reduce the impacts of a variety of reasonably priced debt financing obstacles in order to form more effective free-market interest rates and the value of social capital to maximize returns.Overall, this study makes the following contributions:Firstly, this paper explores internal control’s influence based upon the nature of the property’s perspective on the scale and cost of debt financing and researches "how internal controls affect the scale and the cost of corporate debt financing". Secondly, this paper explores the relationship between internal controls, corporate size, and the cost of debt financing. The introduction of the variable nature of property rights for the observation provides a new perspective for research. Thirdly, this paper describes debt financing using two dimensions; debt financing size and cost are the two aspects of debt financing. Full consideration of this will help us treat corporate debt financing more accurately and provide us with a more reasonable range for further research studies.