Executive Characteristics、Internal Control Efficiency And Firm Value

In recent years, the internal control has attracted great attention in academic research and practice with a series of accounting scandals outbreaking such as Enron, Worldcom and Yinguangxia. It is an urgent matter for the supervision departments and academia to improve the corporate internal control construction. The current academic research about internal control has mainly focuses on four aspects:(1) the reform and innovation of internal control;(2) the contingency studies of internal control elements;(3) the evaluation standard of internal control quality;(4) the influence factors and economic consequences of internal control defect. However, the existing researches are concentrated on the level of company management structure and never think over whether the background characteristics of corporate managers could affect the effectiveness of internal control.In national economics, the state-owned enterprises play an important role. However, the internal control deficiencies exist in the state-owned enterprises prevalently nowadays. Therefore, the goal, how to guard against risk, strengthen the effectiveness of internal control and realize the value of the state-owned assets, has become increasingly important for state-owned enterprises. Thus, in the state-owned enterprises, whether and how the background characteristics of managers could affect the effectiveness of internal control and then affect the enterprise values is an interesting and important question. To answer these questions, we have made efforts and explorations.Based on Upper Echelons Theory, using the data of A-share listed state-owned enterprises from2009to2012, we manually collect executive background characteristics for2087firm-year observations and empirically test the relationship between executive characteristics、internal control efficiency and firm values. First, we test the relationship between executive characteristics and internal control efficiency. Second, divide the state-owned enterprises into two groups:local SOE and central SOE (categorized by ultimate ownership types of listed firms) and separately test the relationship between executive characteristics and internal control efficiency. Last, we test whether the effect of internal control on firm values is significantly distinct under different executive characteristics.This current paper is organized as follows:Chapter one is introduction. This part includes research background、research significance^research methodology and research context. Meanwhile, we put forward the innovation and possible deficiencies of our study.Chapter two is theoretical analysis and literature review. According to research purpose, we make a comprehensive overview about related theory and select the principal agent theory、human capital theory and upper echelons theory as our theory foundation.Chapter there is research design. Based on the previous theoretical analysis and literature review, we propose two hypotheses as follows:(1) Ceteris paribus, executive characteristics may have a significant effect on internal control, but the this kind of relationship may not exist in central SOE;(2) Ceteris paribus, under different executive characteristics, the effect of internal control on firm value may be significant distinct;In order to test the above two hypotheses, we establish two linear regression models in this part.Chapter four is empirical analysis. First, we conduct descriptive statistics and correlation analysis of all variables and identify whether multicollinearity in our model is serious. Second, based on established linear models, we conduct multiple linear regression analysis. Third is robustness check.Chapter five is conclusion and implication.The conclusions of this study are as follows:First, in SOE, we finds that the order the executives, the more efficient the internal control and the longer the tenure of the executives, the more efficient the internal control; ie. there is a significant positive relationship between the age of the executives and the effectiveness of the internal control as well as a significant positive relationship between the tenure of the executives and the effectiveness of the internal control.Second, although the age and tenure of the executives could improve effectiveness of the internal control, but this effect only exist in local SOE, doesn’t exist in central SOE.Third, when the executive is in the middle age or the tenure of the executives is longer, the effectiveness of internal control can heighten corporate value.In addition, the main innovation and contribution of this paper is as follows:First, this research not only enriches the executive background theory and internal control theory, but also has strong significance in practice. Previous studies mainly focus on the relationship between the executive characteristics and organizational performance or other factors such as investment or earnings management, which consider all executives as a team. However, the chairman in China is special and he has absolute decision-making rights in his firm beyond other executives. So, the paper only focuses on the chairman characteristics and studies the relationship between his characteristics and internal control efficiency.Second, this research presents important reference for the selection of executives in SOE.We find that in local SOE, the chairman characteristics, such as age and tenure will significantly affect internal control efficiency, but in central SOE, all chairman characteristics in our research don’t have influence over internal control efficiency. So, relative to central SOE, the characteristics of the executives should be considered when selecting executives. According to our empirical results, middle-aged and long tenure executives should be selected to improve internal control efficiency.