The Influence Of Management Background Characteristics On Internal Control Quality

Since the United States issued Sarbanes-Oxley Act, the importance of internal control is becoming increasingly prominent, and gradually becomes a tool to prevent risk and improve management quality for enterprises all around the world. China’s Ministry of Finance and other five ministries also promulgated "The Basic Standard for Enterprise Internal Control" in2008and its supporting guidelines in2010, respectively, to guide Chinese listed companies to perfect their internal control establishment and implementation, thus enhancing enterprise management level. However, relevant scholars’researches show that Chinese listed companies’ internal control quality is generally low, and there are still lots of problems during internal control system implementation. Many enterprises establish internal control only to deal with the specification requirements of formalism, but lack correct and deep understanding of internal control in mind, which is one of the most important reasons that lead to internal control failure.From the point of theory, based on the literature review, researches are mostly concerned with dominance factors(hard factors) that affect internal control, such as complexity of business, accounting measurement risk, corporate governance structure, and investment for internal control implementation, etc.; while neglecting recessive factors(soft factors), such as managers’risk awareness, management ideas, management philosophy and values.In fact, comparing to hard factors, soft factors play a more important role in the process of internal control implementation. This is because "people" especially enterprise managers who bear the construction of internal control and keep the major responsibility for its validity are the core during the establishment and implementation of internal control.Based on this, this article focuses on soft factors that affect internal control, observes from the perspective of managers’characteristics, and puts the research into the framework of "Upper Echelon Theory". In this article, the author chooses management background characteristics such as age, gender, education degree, tenure, education background, and work experience as alternative variables, uses Chinese-A-share listed companies in year2009to2011as research samples, investigates the relationship between management background characteristics and internal control quality, to verify that soft factors are significant in internal control implementation. This study, on one hand, enriches literatures relevant to factors influencing internal control, provides a new perspective for related studies; on the other hand, this paper confirms that management background characteristics make important effects on internal quality control, which has great significance to improve enterprise risk awareness, promote the establishment and implementation of internal control, and improve internal control quality.This paper conducts the research in the following way:Firstly, summarize merits and shortcomings of existing research literature.Secondly, test and explore effects of management background characteristics on internal control quality using empirical models, which based on data of Chinese-A-share listed companies. Finally, in view of the above, several relative policy proposals are put forward.This study finds the chairman’s gender, age, education degree, tenure and education background;the general manager’s tenure and education background, the chief financial officer’s education degree and education background;and the supervisory board chairman’s education degree and work experience present significant correlation with internal control quality. This conclusion shows that management background characteristics has a certain influence on internal control quality, and different background characteristics of administrators have a quite different degree of impact on internal control quality.The main innovation of this paper lies in:using the data of Chinese listed companies to study effects of management background characteristics on internal control quality. Existing research on factors influencing internal control are discussing hard factors like company size, complexity of business, corporate governance structure, and so on. Based on Upper Echelon Theory, and observing from the perspective of management background characteristics, this paper studies soft factors that affect internal control, paying attention to managers’risk consciousness, management concept, management philosophy and values which play a key role in internal control construction, giving a systematic and comprehensive view on internal control..The inadequacies are reflected in:although stock exchange issued the guidance of the internal control as early as2006, but the overall implementation of norms of internal control in listed companies acturelly start in2009. At this initial stage, the disclosure of internal control information is imperfec unavoidably, this, to a certain extent, affects the results of this paper.