The Relationship Between Internal Control Weakness And Executive Compensation Based On The Perspective Of Executive Power

Chinese enterprise internal control standard system is established gradually and put into force. It’s important to test the effectiveness of it, and we should be focus on the internal control influence on executive compensation and the role of executive power during the relationship. Based on such background, we explore the relationship between executive compensation and internal control weakness using data of 2012 to 2014 of public listed companies. At the same time, we divide the executive power into three parts and explore the affection of each one to the relationship between executive compensation and internal control weakness.There are five chapters in this paper. Chapter 1 is introduction. Chapter 2 is a literature review on internal control, executive compensation and power. Chapter 3 introduces theoretical basis and research hypothesis. The hypothesis is underpinned by the relative theories of principal-agent, upper echelons of management theory and the optimal contact theory. Chapter 4 is the variable definitions and the research design, including the important variable’s definition, the measurement of executive power and the internal control weakness. Then we build a research model for this paper. At last, we chose our sample used in the next part. Chapter 5 is the inspection of the hypothesis and the analysis of result. Finally, it concludes the dissertation by stating its research conclusions, and putting forward policy recommendations, limitations and future prospects.The major conclusions of the dissertation are as follows:(1) Compared to the executives work in companies without internal control weakness, those work in companies which have internal control weaknesses take less compensation.(2) The executive power effects the relationship between internal control weakness and executive compensation. To be specific: power from the executive ownership will strengthen the relationship, power from executive ability and executive organization will weaken it.(3) In addition, we find that the executive compensation is significantly related to company’s performance. Nature of the actual controllers and executive compensation are significant negative correlation. The companies with higher executive compensation are bigger and have more subsidiary companies, at the same time, they are more willing to hire accounting firm of big4 for annual audit.