The Study On Influence On Earnings Persistence By Internal Control Of Listed Company In China

To an enterprise, a stable business environment, low operating risks and financial risksas well as maintaining the lasting development of the enterprise are its important strategicobjectives. That the enterprise can achieve sustainable and stable profitability directlyreflects whether the strategically objectives are realized or not, and the internal control is animportant mechanism to guarantee the enterprise to make the strategically objectives cometrue. In this thesis, it is summarized firstly that the domestic and foreign research status ofthe impact of internal control on earnings persistence and then theoretical elaborations ofinternal control and earnings persistence of listed companies are given separately. Next therelationship between internal control and earnings persistence is analyzed. From the earningslevel and earning changes these two aspects, that how does internal control impact onearnings persistence is analyzed and the hypothesis is proposed that internal control hassignificant positive associations with earnings persistence. To a listed company, the higherthe quality of its internal control, the stronger its earnings persistence, the greater the cashflow and accrual earnings persistence, and the quality of internal control making impact onaccrual earnings persistence is significantly greater than the impact on cash flow earningspersistence.In this thesis, by using annual data of A-share listed companies in2010to2012as asample of cross-section data to perform the empirical analysis on the influence of internalcontrol quality on earnings persistence, and finally5072annual sample data are obtained.Internal control self-assessment reports and audit reports will be disclosed. Companieswhose internal control without existing general defects, significant deficiencies or greatdefects will be selected as sample companies to be as high-quality internal controlcompanies; companies that don’t disclose internal control audit reports and internal controlexisting significant deficiencies or great defects will be low-quality internal controlcompanies. By using dummy variable1,2,3to measure the quality of internal control, usinga first-order autoregressive model and with the current surplus and its components regressionto estimate their continuity: the higher the regression coefficients, the stronger the earningspersistence. Through the research, it is found that the lower the quality of internal control,the greater the average reversal effect of surplus change and the lower its persistence. The higher the quality of internal control, the stronger the earnings persistence of listedcompanies and the greater the cash flow and accrual earnings persistence; the lower thequality of internal control, the lower the earnings persistence and accrual and net cashearnings persistence. Impact that quality of internal control makes on accrual earningspersistence is significantly greater than that on net cash earnings persistence.Finally, suggestions are put forward that improving the internal environment of theenterprise, reducing adverse selections and moral hazard of management and restrainingopportunism behavior of management. Through risk assessment, internal control canpromptly recognize and assess risks faced by the enterprise. Minimizing illegal risks fromthe most basic business activities to avoid the impact of high-risk business of enterprise sothat the enterprise can have stable operation in low-risk environment, avoid sharp fluctuationin business and maintain its operation and stable earnings persistence.