Research On The Impact Of The Disclosure Of Weaknesses In Internal Control On Enterprise Investment Efficiency

Sarbanes Oxley Act promulgated in 2002, which have a significant influence on disclosure of internal control information. China promulgated the "enterprise internal control basic norms" in 2008 and the “enterprise internal control supporting guidelines” in 2010 also requires listed companies to disclose a report of internal control self assessment,which should contains internal control weakness. Disclose the internal control weakness of firms in the capital markets as a kind of effective in relieving asymmetric information problems, which behavior we called signal transmission, it’s economic consequences attract a lot of scholars both at home and abroad pay a widely attention to the research. After companies disclosure the internal control weakness, trigger signal transmission can alleviate the information asymmetry on the level of management effectively, which made the firm stakeholders to realize firm management’s vulnerability. From various stakeholders’ tangible and invisible pressure, management will strengthen its management of supervision, suppress the risk of external investors’ adverse selection and operation and management’s moral hazard, that makes firms’ management become more open and transparent than before, its investment decision would have a better supervision and restraint, and all of these would optimize the allocation of firm’s limited funds efficiently, and improve the investment efficiency of firms.Depend on Chinese listed companies disclose internal control weakness transferred voluntary phase into compulsory phase in 2012, this paper empirical tested that in 2010-2014 under different degree of financing constraints, what the firm’s investment efficiency will be when internal control weakness is disclosed, and what is the difference of investment efficiency between voluntary and obligatory disclosure of internal control weakness. By deeply research, this paper found that:(1) in the year prior to disclosure, firms significantly over-invest when they are financially unconstrained, and firms significantly under-invest when they are financially constrained.(2) after the disclosure, there is significant reductions in over-investment but not in under-investment.(3) In the firms who are financially unconstrained, obligatory disclosure of internal control weakness has more relief than the voluntary’s on over-investment; In the firms who are financially constrained, obligatory disclosure of internal control weakness has more relief than the voluntary’s on under-investment.The study of this paper broadens the research on the economic consequences of internal control deficiencies disclosure in China, and provides micro evidence to support the economic consequences after the promulgation and implementation of "supporting guidelines for enterprise internal control" in 2010. The research results of this paper will help departments to make policy to improve internal control weakness deficiencies disclosed normative, and strengthen the mandatory of disclose internal control weakness, and help enterprises to improve its internal control construction and the efficiency of investment.