Research On The Impact Of Government Intervention Over Internal Control Of Local State-owned Companies

In recently, internal control is a hot topic, as well as an important aspect of the system construction of listed companies in our country. Some studies have found that the state-owned companies of our country have poor internal control, in other words, the internal control is just a kind of form. So, improving the operating environment to enhance the internal control effectiveness of state-owned companies is very worth to study. Actually, the development of our economy is still in the transition period. At present, China is in a period of economic restructuring, that is to say, the government is still an important factor that can affect the enterprises. However, the traditional internal control theory has been designed for the modern enterprises with higher market-based degree. Therefore, researching internal control effectiveness should take fully consider the impact of government, especially for local state-owned companies which have a high degree of government intervention.In order to study the relationship between government intervention and internal control, using an unbalanced panel data set comprised of 2394 non-financial local state-owned listed companies from 2009 to 2013.Based on the Basic standard of Corporate internal control (2008) definition of five objectives, the results show that: with enhancing of government intervention, the internal control can provide more guarantee for strategies, compliance, and assets; however government intervention significantly reduces the corporate performance and the quality of financial reports; overall, government intervention can obviously weaken the internal control. In addition, this paper further studies the impact of government intervention over internal control of local State-owned companies in different industries. The results show that there is a different impact in different industries. Empirical analysis of the results, the paper proposes the some recommendations about improving the operating environment to enhance the internal control effectiveness of local state-owned companies.