An Empirical Study Of The Effects Of Corporate Internal Control

As of December2012, a total number of46companies listed in the area of HebeiProvince. But in recent years, a number of listed companies within the area of HebeiProvince suffered different degrees of problems in the course of its business development,undoubtedly, the most serious was Sanlu Group’s "melamine" event. These problemsexposed the listed company’s internal control deficiencies in some way. Since2006, therelevant administrative supervision department has issued a series of policies anddocuments with internal control related, to some extent, these initiatives contributed to ourcountry in the institutional development of internal control, however, through the currentannual report of listed companies, there still are many companies found big problems onthe effectiveness of internal controls operation and information disclosure. The reason forthis situation is the listed company itself puts not enough emphasis on internal control,because improve internal control system and ensure its effective operation undoubtedlywill bring additional economic costs. if such economic costs will take corporateperformance a positive impact, enterprises will be from their own interests, raise theimportance of internal control. The enterprises have no clear understanding of this,theorists and practitioners have also lack of systematic research. Significance of this studyis to explore the relationship between corporate performance and the effectiveness ofinternal control. On one hand, expand research in the field of internal controls; at the sametime, by building a logical relationship between the objective of internal control andcorporate performance, the effectiveness of internal control’s impact on the performance ofthe enterprise reacts out in the form of quantity, then verify whether strengthen internalcontrols can add the enterprise value, provide results-oriented corporate internal controlsystem to enable enterprises to pay more attention to internal controls perfect.This paper has combined the method of normative and empirical research method,through retrieving and reading the relevant literature on internal control and corporateperformance at home and abroad, generalized, summarized and organized the theory. Usenormative research methods to analyze the impact of the relationship, and use the principal-agent theory and signaling theory as the theoretical foundation of internal controls; On the basis of normative research, use empirical research methods, from2010to2012, basedon the data of annual reports of listed companies within the jurisdiction of Hebei Province,analyze Operating conditions of the internal control of listed companies, whether internalcontrol disclosure of information is detailed, objective and comprehensive enough; and useeconometric model analysis, the data are grouped according to the Shanghai and Shenzhen,conduct independent samples T-test, and multivariate regression analysis model establishedbetween the company’s internal controls and the performance of listed companies, take therating results of Shenzhen Stock Exchange and the Shanghai Stock Exchange listedcompany’s relevant circumstances having not disclosed the internal control operation asexplained variables. As four financial indicators react to the level of performance of listedcompanies, select ten having a significant effect on firm performance factors as controlvariables, validated on the relationship between the effectiveness of internal control andcorporate performance, draw the conclusion that the effectiveness of internal control aswell as related information and corporate performance are in positive correlation.On the basis of the results of the empirical analysis, this paper presents a proposal toimprove the corporate performance by improving effectiveness of internal control andquality of related information disclosure. First, the relevant provisions should bestrengthened about internal controls. Second, in the annual reports of listed companies, todisclose internal control system construction and operation of an efficient state, the contentand format should be uniform. Third, establish the tracking oversight mechanisms of theinternal control effectiveness and information disclosure of listed companies. Fourth,further accelerate the building of enterprise internal control system, and improve thefunction of the board, supervisors and other relevant agencies.Through the study, this paper has drawn following conclusions:(1) The effectivenessand operation-related information disclosure of internal controls and the performance oflisted companies proxies have a significant positive correlation.(2) For listed companieswho are willing to disclose the effectiveness of internal control and other internal controlrelevant information, on key indicators related to business performance they surpass thosewho did not take the initiative to disclose the effective operation of internal controls, and inthe company with higher quality of information disclosure, the traditional financialindicators are better than the companies with poor quality of information disclosure.