An Empirical Study On The Effect Of Internal Control On Earnings Quality

In this paper, 80 small plates listed companies in Jiangsu and Zhejiang which is listed for the study, and gets a total of 400 samples for 2009-2013 set of valid observations. From the perspective of internal control, surrounding the principal-agent theory, asymmetric information theory and efficient capital market theory three theoretical foundation, the paper analyzes the impact of the internal control of small listed companies in Jiangsu and Zhejiang on earnings quality. Firstly, this paper reviews and combs the relationship between internal controls and Earnings Quality between domestic and foreign related literature. The basic contents of the internal control and earnings quality will be clarified, and this paper describes the selection and measurement of earnings quality model. Based on the theory of the influence between the internal control and the earnings quality, the paper puts forward the research hypothesis combining with the characteristics of the sample. The research hypothesis is presented in based on the combination of the analysis and characteristics of the sample.Secondly, after defining the concept of small and medium-sized enterprises, the paper intends from the structure of industrial organization, industrial cluster, the government and culture’s angle to introduce its development characteristics, status and existing problems of internal control. Through the analysis found the imperfect corporate governance structure of listed companies lead to poor internal control environment and the weak consciousness. The disclosure of the defect and the report standardization are far lower than the main board market. Then, this paper uses Jones model metrics modified explanatory variables that earnings quality, from the five elements of internal control explain the internal control variables. Besides, this article focuses on the comprehensive evaluation of the internal control system of the construction and measurement.By descriptive statistical analysis, we found that the small listed companies in Jiangsu and Zhejiang uneven level of earnings quality, and high degree of volatility, a large gap between the annual internal controls. In 2012 the board began to disclose the full implementation of the internal control, and the overall level of internal control is getting better. It also shows the listed small plates in China internal control mechanism is not perfect, and the internal control of listed companies in Jiangsu and Zhejiang is under middle level. Pearson correlation testing to determine the multiple linear regression model does not exist multicollinearity,and then we can take empirical analysis on internal control and earnings quality of the small listed companies in Jiangsu and Zhejiang. The results showed that: Internal control and earnings quality is positive correlation; Information and communication and earnings quality is positive correlation; Internal monitoring and earnings quality is positive correlation; Internal control environment, risk assessment and control activities and earnings quality is unrelated; Lastly, from the empirical results, based on the present status and characteristics of the internal control, the paper is proposed by improving the level of small and medium enterprises listed company’s internal controls to improve earnings quality recommendations.Keywords: Internal Control; Earnings Quality; Modified Jones model; Small and...