Research On The Relationship Between Board Network And Internal Control Quality Moderated By Board Member Characteristics

With the development of economy, modern enterprises pay more and more attention to the internal governance of companies. Most of existing researches on board of directors focus on the formal structures or demographic characteristics. However, the highly uncertain institutional environment and non-developed market mechanism are pushing enterprises to use a variety of informal mechanisms instead of the formal mechanisms. Well, the main forms of informal mechanism are social networks. In fact, the board network, featuring of informal weak ties, plays a more important role in enterprises. And the internal control disclosure and quality of enterprises are in different levels.This research focuses on the relationship between board network and internal control quality, and tests the moderate effects of board member characteristics. Using the standard research method and empirical research method, the paper starts from the relationship between board network and internal control quality and follows the perspective of social network. After the analysis and literature review, this research builds models of relationship between board network and internal control quality and the moderation effects of gender, education background, professions, government background and paid way. This paper chooses listed companies of Shanghai and Shenzhen stock markets from 2010 to 2014 as the research samples and using MATLAB to process the directors’ information and gets the matrices of interlock enterprises. Based on the matrices, the research takes UCINET software to calculate the centrality data. Finally, conclusions are made with STATA after verifying hypothesis.The study finds that different network centralities lead to different internal control qualities. The higher network centralities, the higher internal control quality of listed companies will be. Building higher network centralities directly helps enterprise’s internal control qualities. At the same time, gender, educational background, profession, government background can enhance this relationship at certain amount.This research enriches the existing studies perspectives and extends the measurement of board characteristics to firm level. The conclusions of the research help enterprises with board government and personnel allocation. In order to increase the level of corporate governance, the enterprises could change the gender diversity and prepare more professional trainings.