| Small and medium sized enterprises(SMES) board was set up in China in year 2004. With the boosts of Chinese economy, enterprises listed on SMES board have obtained great achievements, while in the same time, many problems arise. One of the most grave problem exists is that a large number of SMES board listed companies invest at a rather low efficiency, and it represents two aspects: on one hand, the separation of ownership and control phenomenon, which exists universally in modern companies, has brought out the principal-agent problems and led to excessive investment; On the other hand, however, the information asymmetry in capital market has made it difficult for SMES to raise funds in time, thereby to cause under-investment. Reasonable investment is the key to promote a sustainable and healthy growth for a firm, while the investment inefficiency problem has been one of the main obstacles lying on the way of developments, and will cast a shadow to the whole capital market as well. As a consequence, SMES investment inefficiency is a problem that could not afford to ignore.In 2015, the leading Enterprise Risk Management company in China, Di Po, published "The 2015 White Paper on the internal control of China’s listed companies", it pointed out that the internal control of China’s listed companies need to be strengthen in terms of specifications making, and that these companies have disappointingly high level of violation occurrence rate. Large numbers of reliable statics suggest that Chinese SMES are also faced with low quality in internal control phenomenon, and are in a worse situation than those on other boards.So, this thesis will try to make up the gap of recent studies in internal control field, base on the investment inefficiency problem that SMES board listed companies share, explore the mechanism how internal control influences these companies through earning quality. And then from the perspectives of internal control and earning quality to resolve the investment inefficiency problem by enriching and implementing the economy outputs, and providing supports and advices.Meanwhile, the thesis will combine theoretical analysis and empirical research. First of all, I will focus on the available research findings in China and aboard on the triangular relations among internal control, earning quality and investment efficiency, making commentaries, analyzing and summarizing them, thus to lay a theoretical foundation for the thesis. Besides, the strong points will be absorbed and weak ones will be avoided to throw a light on which direction to work on. Secondly, the thesis will be built on a series of scientific theories like the Behavioral Finance Theory, the Asymmetric Information Theory and the Principal-agent Theory etc. Points like how internal control affects earning quality and how that thereby to affect investment efficiency will be analyzed and presented in detail. In the empirical research part, I selected SMES board listed companies in the manufacturing industry, who went listing before 2010, and have been running from 2011 to 2016, as samples for studying. Internal control, earning quality and investment efficiency, as well as control variables were chosen to construct multiple regression models. After descriptive analysis, correlation analysis and regression analysis, the following conclusions have been drawn: High quality of internal control does improve the investment efficiency of SMES board listed companies. And, earning quality has a mediating effect within the relationship between internal control and investment efficiency. |
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