The Impact Research Of Internal Control Deficiencies Disclosureon Equity Capital Cost

In recent years there have been many shocked events, such as the financial fraud of listed companies and the failure of internal control. Therefore, the regulators of many countries in the world constantly make the efforts of improving the internal control system and regulating the disclosure of internal control information. Sarbanes-Oxley Act was promulgated in the USA, and a series of laws and regulations for the internal control have also been developed in order to improve internal control quality in China. However, under the background of uncertainties in the capital markets continually increasing and institutional investors developing, they have been the focus of regulators and experts, which are whether to guarantee the quality of information in the capital markets, and reduce information asymmetry between listed companies and investors, thereby reduce the risk and cost of equity capital for investors, through improving the internal control system and regulating the information disclosure of internal control. It is exactly the core of this paper.The first part of this paper reviews the research results in China and abroad, then analyze qualitatively the two ways of how the disclosure of internal control deficiency affects the cost of equity capital, which bases on the theory of asymmetric information, the principle-agent theory, the signal transmission theory and efficient market theory At the second part of this paper, on the basis of theoretical analysis, do the empirical test on how disclosure of internal control deficiencies affect the cost of equity capital. This paper analyzes the current situation of the disclosure of internal control of the listing Corporation in Shenzhen and Shanghai Stock Exchange, then study the1479Shanghai A-share listed companies between2011and2013, taking the cost of equity capital calculated by the PEG model as the dependent variable, taking market risk, financial risk, operational risk, company size, profitability, total asset turnover, book capitalization ratio, stock liquidity as the control variables. And then analyze the different affects between state-owned companies and non-state-owned companies, and the moderating effect on the relationship between disclosure of internal control deficiencies and the cost of equity capital by adding the element of institutional investors. The empirical research mainly makes the following conclusions. Firstly, the disclosure of internal control deficiencies results in the rise of the cost of equity capital. Secondly, compared with non-state-owned enterprises, the influence is more pronounced for state-owned enterprises to disclose the internal control deficiency resulting in the cost of equity capital rising. Thirdly, compared with the companies in which institutional investors hold a high proportion, the influence is more pronounced for the companies in which institutional investors hold a low proportion to disclose the internal control deficiency resulting in the cost of equity capital rising. Finally, make the practical and concrete recommendations from regulator and company for solving the main problem of the internal control of listed companies, and expound the limitations of this study and future directions of this research.