Research On Market Reaction To General Weakness Disclosure Of Internal Control

This paper studies market reaction to general weakness disclosure of internal control. Statistical datas come from reports of the audit of financial statements, internal control self assessment reports and internal control audit reports of listed companies in Shanghai and Shenzhen in2009-2013. In order to study general weakness information disclosure of internal control and the relationship with stock price changes, empirical methods such as regression analysis are used to analysis datas of szse-listed companies in2011-2013.Through the research, we can find that, disclosure of internal control general weaknesses is not necessarily a bad market signals. The disclosure will not only have a lower stock prices oversight effect but also enhance the earnings effect of the share price. The changes of stock price depend on the comparison of earnings effect and monitor effects. When the monitor effects were greater than earnings effect in the market, it may show "bad news" resulting in decline in share prices. And when the earning effects were greater than monitoring effects, it may show a positive signal in the market, pushing the company’s shares up. If a company disclosed internal control audit reports as well as self assessment reports with the standard comments, it may enhance its social credibility and show a positive signal, enhancing the earnings effects of corporate disclosure, enhance the company’s share price to improve the company’s market value.