An Empirical Study About Influence Of Major Shareholders’ Proportion To Internal Control Quality Of Public Companies

As the main means of corporate governance, internal control attracts lots of attention from the academic research. In recent years, with the internal control gradually improve relevant laws and regulations, especially since the mandatory disclosure of internal control report of listed companies, the relevant study of internal control of listed companies gradually emerging. The stand or fall of enterprise internal control to a certain extent will ultimately reflected in the company’s operating results. Enterprise equity structure is important part of corporate governance, thus, academic research on this problem are also common. There is plenty of academic research for ownership structure. Some scholars believe that predominant of one shareholder is the root of rights infringement from controlling shareholders. It may also lead to the inefficiency of stock market and the problem of internal governance. Thus, these scholars promote the structure of check-and-balance of ownership. Some scholars think that large shareholders in the listed companies in the role of "watchdog", along with the increase of the major shareholders holdings, shareholders’ supervision and control of the company will be stronger and be more help to the company’s internal control and management. This paper explores the influence of the proportion of the first largest shareholder on the quality of the internal control of listed companies. The result of empirical analysis shows that higher proportion of the first largest shareholder brings more effective internal control mechanism. Moreover, we introduce three moderators, ownership structure, industry growth and regional development degree. The results shows that, on the one hand, compared with state-owned firms, the proportion of the first largest shareholder of non-state-owned firms has a stronger effect on internal control quality. On the other hand, compared with slower growing industry, the proportion of the first largest shareholder of firms in faster growing industry has a stronger effect on internal control quality. In addition, regional development degree has no significant moderating effect. Our findings not only make a further step to the previous studies of internal control quality, but also provide important guidance of the way to improve internal control mechanism for the Chinese enterprises.