Study On The Effects Of Ownership Structure To The Internal Control Effectiveness

A high level of internal control can not only improve the quality of informationdisclosed by the company, increase the confidence of external information users, but alsoconducive to the company’s scientific and standardized management, provide aninstitutional guarantee for the long-term healthy development of the company. Internalcontrol system construction in China started relatively late, and the existing internal controlsystem is far to play its due role. Thus, in many ways to explore the many factors thatinfluence the effectiveness of internal control is important to improve the company’sinternal control situation. With the deepening of China’s economic reform, comprehensivedevelopment of the modern enterprise system has become a trend. In order to develop themodern enterprise system whose basic characteristic is good separation of ownership, thekey is how to deal with corporate governance issues. The core problem of corporategovernance is the shareholding structure. Because of the special history of our economicsystem, whether it is state-owned enterprises or private enterprises, shareholding structureis still not reasonable, and eventually leads to a series of corporate governance issues.Therefore, theoretically and empirically investigating the ownership structure has practicalsignificance to affect the effectiveness of internal control, the study will help peopleunderstand from the perspective of the ownership structure and internal control evaluation,and improve the effectiveness of internal control structure to provide a theoretical andempirical basis for managers and policy makers from optimization options.This paper has used the specification and empirical research methods, respectivelystudy on the ownership structure affecting the internal control effectiveness and ownershipstructure of listed companies in the area of Hebei Province with the actual impact of thesituation on the effectiveness of internal controls. In the specification studies, this paperdefines the ownership structure and the effectiveness of internal control, based on theconnotation and modern property rights theory, agency theory and corporate governancetheory. On the basis of scholars’ study on the ownership structure and corporategovernance, corporate governance and internal control relationship from home and abroad,summing up the control path and factor of ownership structure to the effectiveness ofinternal control. In the empirical study, this paper is first on the basis of theoretical analysis,making relevant assumptions based on empirical research, and then select the nature of thelargest shareholder, the proportion of the largest shareholder, the proportion of institutionalinvestors, restricted proportion of shares, ownership concentration Z index, theshareholding proportion of the chairman and manager all seven aspects to describe the ownership structure, and constructed systems of internal control evaluation to measure theactual level of effectiveness of internal control, through collecting relevant information oflisted companies within the jurisdiction of Hebei Province by the year2013, the currentsituation of the ownership structure and the effectiveness of internal controls is describedand analyzed, and the relationship of ownership structure and internal control is analyzedwith econometric methods, finally, put forward two policy recommendations from theoptimization of the ownership structure and improving the internal control system toimprove internal control effectiveness.According to the result of theoretical and empirical analysis, this paper draws thefollowing conclusions: First, from the theoretical research results, ownership structure hasimpact on the effectiveness of internal control by the board of directors, supervisors,managers and internal employees, four bodies of internal control implementation; differentownership structures have impact on internal control implementation bodies’ behaviorfrom the agency costs, shareholder protection, agency competition, merger proxy takeover,and ultimately affect the effectiveness of internal controls. Secondly, from the empiricalresearch results, the largest shareholder’s state-owned nature helps to improve theeffectiveness of internal controls; higher proportion of the largest shareholder, the higherthe effectiveness of internal control; With institutional investors holding proportion ofshares increases, the effectiveness of internal control first increased and then decreased;effectiveness of internal control first increased and then decreased as the restricted sharesraise the proportion; With the improvement of the proportion of restricted shares, theinternal control effectiveness also showed first increased and then decreased; With theincreasing ownership concentration, the effectiveness of internal control also showed atrend first increased and then decreased; managers shareholding will increase theeffectiveness of internal control. Finally, the corresponding policy recommendations arebased on research findings:(1) from the shareholding structure, China should continue toreduce the proportion of state-owned shares of listed companies, introduce institutionalinvestors to participate corporate governance actively corporate governance, and acceleratethe lifting of the ban and circulation of restricted shares, reasonably grasp the extent ofconcentration and dispersion of listed companies, and encourage the chairman andmanager to hold stocks temperately;(2) from the construction to improve internal controlsystem, China should strengthen the external construction supervision mechanism of theinternal control, and actively improve internal control information disclosure system andinternal control evaluation system.