Internal Control Audit Report、Auditor’s Reputationand The Cost Of Equity Capital

The enforcement of the SAX Act marked the information disclosure of internal control in the USA from the past voluntary disclosure phase into the mandatory disclosure phase. In 2006, Shanghai Stock Exchange and Shenzhen Stock Exchange respectively formulated the "Internal Control Guidelines", and then, the Ministry of Finance and the other five departments jointly issued the "Basic Norms of Internal Control" and " Guidelines of Enterprise internal Control. " However, since the week foundation of our enterprise’s internal control and the general immaturity of the policies, making the construction of internal control and its disclosure condition being still unsatisfactory. August 14,2012, the Ministry of Finance and the Commission jointly issued "on the 2012 board of listed companies classified in batches implement standardized system of internal control," which further defined the requirements for the mainboard- listed companies in China began to carry out a comprehensive internal control system. Academics generally believe that years before 2012 are the internal control voluntary disclosure phase, and years after 2012 belong to the stage of mandatory disclosure.At present, researches on internal control disclosure of information focused on voluntary disclosure period, there are no literatures to study the impact of internal information disclosure issue on the cost of capital before and after China’s entry into the stage of mandatory disclosure, it lefts some researching space for this article. This article focuses on the impact on the company’s cost of equity capital of the internal control audit reports, as well as the auditor’s reputation in between. After asking questions, the article follows four chapters gradually expanded research: "research foundation—— Mechanism——empirical findings". Through theoretical and empirical research on the relationship among the above three Objects, I draw the following conclusions: First, in the internal control reporting voluntary disclosure phase, the internal audit report as a function of the secondary signal is valid, the company first disclosing internal audit report can be transmitted the incremental value to the external, it can significantly reduce the company’s cost of equity capital. Second, in the internal control reporting mandatory disclosure stage, internal audit report fail to be a function of the secondary signal, the company first disclosing internal audit report no further transfer the qualit y of internal control to the market, the company’s cost of equity capital will not be significantly reduced. Third, under the current C hina’s capital market environment, the auditor’s reputation to some extent strengthens the second signal of the internal control audit report, and thus the auditor’s reputation will affect the company’s investment value and the estimates of the risk.