Study On Internal Control Quality And Over-investment In State-owned Corporation In The Background Of Government Intervention

The investment behavior of enterprises will not only affect their own operating results, but also have an effect on the stable running of national economy. In our country, overinvestment has appeared in many enterprises, especially the state-owned enterprises, leading to excess capacity and redundant construction. At the same time, a series of normative documents like "The Basic Standards for Enterprise Internal Control" issued in2008and "The Supporting Guidelines for Enterprise Internal Control" issued in2010by the Ministry of Finance and other five ministries, marks the formation of internal control legal system. It regards the improvement of business efficiency and effectiveness as one of its targets, which will be affected by investment efficiency.Scholars are actively exploring how to relieve over-investment of enterprises. As an important corporate governance mechanism, the inhibition of internal control to non-efficiency investment behavior has been empirically tested. However, the internal governance mechanism is constrained by the external environment. China is in the early stage of transition period, to study the governance effect of internal control should take institutional environment into account, in which government intervention is an important factor. But the difficulty to intervene different types of enterprises is different, the state-owned enterprises are more serious because they are controlled by government. Therefore, our study on internal control and over-investment in state-owned corporation in the background of government intervention is more meaningful.In this paper, it’s going to study the governance effect of internal control on over-investment in state-owned corporation in the background of government intervention using data of A share mainboard state-owned enterprises during2010-2012. This paper firstly explores the reasons for over-investment and the governance effect of internal control on overinvestment in state-owned enterprises. Further, this paper tests it in empirical method and finds that the more serious the government intervention is, the weaker the governance effect of internal control on over-investment is. Next I would like to discuss whether a series of current state-owned enterprise reform can help improve the governance effect. This paper examines that whether government reduces the intervention by the decentralization of control and the increase of control chain, the governance effect of internal control on over-investment in state-owned enterprises will be better. This paper suggests that it is necessary to separate government functions from enterprise management and reduce government intervention on state-owned enterprises. What’s more, the state-owned enterprises should improve the internal corporate governance mechanism and strengthen internal control, contributing to the reform of state-owned enterprises.This paper includes six parts:The first part gives an introduction of this paper. This part points out the research background and significance. After that is the framework of the article and the possible innovations.The second part reviews existing literate on the governance effect of internal control on over-investment and the role the government intervention play on over-investment and then makes a brief review.The third part includes the institutional background of government intervention and internal control.The fourth part proposed theoretical assumptions on the basis of theoretical analysis.The fifth part designs for empirical analysis. First of all, it explains sample selection method and data sources. Secondly, it selects proxy variables for government intervention, internal control, investment efficiency and control variables. Finally, it presents the models for empirical research drawing on relevant literature.The sixth part is empirical testing and analysis using data of A share mainboard state-owned enterprises during2010-2012. It gives the descriptive statistics and correlation analysis of variables, the analysis of empirical results and robustness test. The last part is the conclusions and recommendations. It summarizes the conclusions and make relevant policy recommendations. Then it puts forward with insufficiency and prospects for future research.The innovation points of this paper mainly reflect in the following three aspects:Firstly, it expands the economic consequences of internal control and provides new ideas for the governance effect of internal control on inefficient investment. It has been empirically tested that internal control can improve the inefficient investment, but these studies rarely consider the internal and external environment. This paper takes government intervention into account to study the governance effect of internal control in the background of transition period. Secondly it expands the study of government intervention. This paper uses regional government intervention and pyramids as the proxy variable of the level of government intervention to prove that it is the existence of government intervention affects the governance effect of internal control on overinvestment. Moreover, it enriches the study of government intervention. At last, it builds quality evaluation index system of internal control in the view of the combination of elements concept and targets concept. The empirical evidence obtained is an effective supplement for the current study on internal control.