The Research On The Market Reaction To Disclosure Of Internal Control Weaknesses

In 2008, China’s ministry of finance, securities and other five ministries jointly issued <enterprise internal control basic norms>, requires evaluation of internal control effectiveness, marked the our country entered the stage of mandatory disclosure of internal control. In 2010, five ministries and further presented <the form a complete set of enterprise internal control guidelines >, to guide and strengthen to the requirement of internal control information disclosure of listed companies. Although the theory of internal control system was perfected step by step, in China, but the practice result is not ideal. In addition, with the development of economy, the internal control has become the focus of enterprise gradually, so to speak, directly affect the operating results of an enterprise, internal control and internal control defects is the potential risk of enterprise operation. Therefore, the research of the listed company to disclose internal control defects and the market reaction, not only can provide the disclosure of internal control defects and the market reaction of practical experience, can also improve the management level of attention to the internal control, stimulate investor demand for internal control information.This article first from the degree of internal control defects, contents, standards,rectification of five angles and industry distribution, analyze the present situation of our country listed company internal control defects that management did not attach enough importance to internal control defects, whitewash behavior to a certain extent, and the defects revealed enough standard specification, fuzzy, supervision and punishment enough. Then deep in 2013, Shanghai main board of the listed companies to disclose the internal control defects in 92 companies as the sample group, and select the corresponding control group, using event study method and T test analysis to disclose internal control defects and the failure to disclose internal control defects after the change of the average excess returns and cumulative excess returns, found that the sample group and the control group the accumulation of excess yield significant differences. Based on regression analysis in this research, the introduction of four control variables: the natural logarithm of total assets scale, earnings per share, dividend policy, and operating income growth, to verify that the cumulative excess yields change is caused by the disclosure of internal control defect situation. This study found that the disclosure of internal control defects have a negative market reaction. At the end of the paper to perfect China’s listed companies to disclose internal control defects, from the regulatory level, enterprise level and investors level and puts forward some policy Suggestions, including improve the system of listed companies to disclose internal control defects, strengthen supervision, the correct understanding and the understanding disclosure of internal control defects, establish an effective internal control system, pay attention to the internal control system, strengthens the education of the individual investors and boost demand for institutional investors to internal control information.