The Research On The Relations Between The Characters Of Managers And Internal Control Environment

In the21st century, with the development and perfection of china’s socialist market economy, the area is growing rapidly, but it is worth noting that,in this process, there are still many companies bankruptcy or closure due to improper control and poor management. Such as "Zhengbaiwen","China Aviation Oil" and "Sanlu milk". Abroad by the "Enron","World Communications fraud event" and "the bankruptcy of Bahrain Bank" as a representative of a series of giant company financial scandal all this events sounded the alarm for the construction of internal control system. Both the government sector or academia theories are given a high degree of attention to this, in2002, the U.S. Congress introduced what is known as most far-reaching reform bill since Roosevelt was president--SOX Act, requires companies to strengthen presentation of financial statements to improve the accuracy and reliability of corporate disclosures,302and404of the Act requires all companies listed in the U.S. and the company intends to be listed in the U.S. disclosure the company’s internal control design and implementation.Since then, foreign regulators have issued a series of regulatory policies on internal control indicates that strengthening internal control has become the important means of the world’s countries, especially developed countries, to improve the corporate governance. Under this background, in2008, China promulgated the known as the "Chinese version of the SOX Act"---"basic Standards for Enterprise Internal Control", the Standards require the listed companies should assess effectiveness of the company’s internal control and disclose the annual report, and hired with accounting firm with securities and futures business qualifications to audit the effectiveness of internal control."Standards based on China’s national conditions, drawing on international policy, established the basic framework of China’s enterprises to establish and implement internal controls, and achieved a major breakthrough. Section3of "Basic Standard for Enterprise Internal Control" clearly states that "the internal control is the process designed by corporate boards of supervisors, managers and staff to achieve objectives. The aim of internal control is the reasonable guarantee legal compliance of business management, asset security, and integrity of financial reports, improve operational efficiency and effectiveness, promote enterprise development strategy." Section12states that "the board is responsible for the establishment of a effective internal control implementation, the board of supervisors supervise the board, and supervision managers responsible for the daily operation of the organization and leadership of internal control. It is not difficult to get, the company’s senior management is related to the establishment, implementation, supervision and execution of internal control. Due to the control environment represents management’s attitude toward internal control and its importance, the control environment is most closely associated with the management decision-making.Hambrick and Mason (1994) proposed a "high-level theory" that the management does not always remain absolutely rational, in real life, more often than not make decisions in accordance with established rules.In different cognitive, values and emotions,managers will produce differences in processing information, to make a different judgment, and this formed the basis of different strategic options. Individual characteristics elements will affect the ability of managers to process information, and will inevitably bring some of their preferences in the decision-making process. High-level theory attracted widespread attention after the proposed, higher-order theory is that managers personal background characteristics, such as gender, age, education level, team size, professional experience, will affect the decision-making model and intervention select of the team. Based on the theory, research on the management leaders from personal characteristics, behavior style steering to management team research, beginning set up organic relationship between management team’s background characteristics and product innovation, investment strategy, degree of diversification and develop diversified. After that many research scholars have extended application of the theory, put the organization performance, the investment behavior, strategy and diversification strategy into the scope of the study. This theory has become an important theory of management science, and a large number of empirical evidence obtained in empirical studies. Bantel and Jackson (1989), Hambrickhe and D’Aveni (1992), Wiersema and Bantel (1992), Camelo-Ordaz (2005) found that the management team tenure affect the enterprise strategy, also management team age,term and education is certain related to innovation; the domestic scholar Jiang Fuxiu (2012) demonstrated corporation management background characteristics and over investment behavior had significant relationships. He Weiliang (2010) also found that corporation management background is related to financial restatements.Review of domestic and foreign literature on the empirical study of internal control environment, can be attributed mainly to the evolution of internal control environment concept and the empirical research results. The internal control environment concept has evolved from a part as the accounting control system to formally incorporate into the internal control system. The empirical study of internal control environment is mainly to investigate the elements, the generation mechanism, forecasting means and improving method. Finally, summary and review of the relationship between manager background characteristics and internal control, less research results in this part of the topic, usually relates to the effectiveness of internal control and internal control quality, almost no scholars considering the influences of manager background characteristics from the aspects of internal control environment. This provides an opportunity to research the relation between management background characteristics and internal control environment, is also the original intention of selecting the topic.Before consider the effect of management characteristics on internal control environment, the problem we must first solved is how to evaluate the internal control environment, internal control environment is the foundation of the internal control system, affect the other four elements. How to measure the internal control environment is the focus of this paper. Considering the internal control environment composed of a variety of factors, we use three kinds of elements, eight specific indicators to determine the comprehensive scores of internal control environment using principal components analysis. Then, this paper studies the effect of five management characteristics, such as team size, team sex ratio, the average age of the team, the team average education level and average tenure of the team, on internal control environment.In addition, this paper also compares the state-owned enterprise group and non-state-owned enterprise group, the relation between management characteristics and internal control environment is difference between the two groups.so we can explore the impact of property right to study possible. Finally, some conclusions were determined by the empirical results, put forward opinions and suggestions, and points out the limitations of this paper.This text is divided into six chapters, detailed introduction is as follows:Chapter1:introduction. The introduction describes the background and significance of the research, according to the research purpose, the research content were determined, and puts forward the research methods and framework of this thesis, and points out that the innovation of this paper.Chapter2:literature review. This chapter introduced management characteristics, internal control environment and the relation between management characteristics and internal control environment from the two aspects of foreign and domestic. The introduction of review of the previous literatures of management characteristics from the definition of management team, characteristics and the effect of management characteristics. Review of internal control environment includes the concept evolution of internal control environment and the empirical research results of internal control environment. Finally, summary the related research between manager characteristics and internal control. Less research results in this part of the topic, usually relates to the effectiveness of internal control and internal control quality. This part is the important achievements and summarize, effective verification is also the direction of research is feasible and innovative, through using the method of literature analysis we find that, the subject of this study in the present study is less, is the effective development and innovation on the direction of current research.Chapter3:the theoretical analysis and the research hypothesis. This chapter is the core of the premise. First, introduces the mechanism of the effect of manager characteristics from the corporate governance theory, team theory and high order theory. Secondly, discuss the influence on the internal control environment from five aspects of the manager characteristics, respectively is the team size, team sex ratio, the average age of the team, the team average education level and average tenure of the team. And based on this, put forward five hypotheses:(1) management team size and internal control environment are positively correlated; (2)The women proportion of executive team, is positive correlated with the internal control environment;(3)The average age of team is positively related to the internal control environment;(4)Average level of education of team and internal control environment is positively correlated;(5)Average tenure of team is positively correlated to internal control environment.Chapter4:study design. This chapter is based on the theory analysis of the third chapter, through the summary of research results before scholars, put forward the concept definition of the internal control environment and management. For the internal control environment, we use three kinds of elements, eight specific indicators, to determine the comprehensive scores to measure internal control environment using principal components. After consulting the previous research, to determine the specific definition of the variables, sample selection and data sources. In the next part describes in detail the method to measure the internal control environment variables using principal components analysis, finally establishes the model design.Chapter5:empirical analysis of the test results. Statistical analysis software used in this thesis is the STATA11, first, multi variables of4136sample firms were descriptive statistics, then in order to avoid the presence of multicollinearity, make correlation analysis among variables. Finally, the relationship between management characteristics variables and internal control environment are studied by multivariate linear regression, regression analysis for the total sample regression and grouped regression, grouping regression considering influence of the property rights on the relation between for the manager characteristics and internal control environment, finally according to the above test results are validated with the analysis of the hypothesis.Chapter6:conclusion and suggestions. According to the empirical results in this paper we propose optimization of listing corporation management team recommendations:(1) take the management characteristics into consideration;(2) increasing team size;(3) increasing the proportion of women’s members in non-state owned enterprises;(4) increasing the proportion of higher education management. Finally point out the innovation points and limitations.Based on this, future research direction of this paper:(1) to measure the internal control environment, we can introduce more variables, establishing a reasonable indicator system by taking into account a variety of factors including employee values, management style, philosophy, and human resources policies. At the same time in the evaluation of internal control environment, take the enterprise culture style more into consideration;(2) using a balanced panel data as the study sample, in future studies, can be considered in the balanced panel data to the company’s annual differences were analyzed, in order to better explain the relationship between manager characteristics and the internal control environment;(3) considering the effects of team diversity on the relationship between manager characteristics and the internal control environment, this paper used in the study is the team average data, in future research can bring the study into the team diversity, consider whether differences between members will affect the build and defect mechanism of the internal control environment.