Research On The Impact Of Executive Characteristics On The Effectiveness Of Internalcontrol In Listed Companies

Since the Sarbanes-Oxley Act, people have emphasized the importance of internal control. Internal control method becomes an important tool for enterprises to prevent risks and improve management quality. China has also strengthened the internal control and established the internal control system. To some extent, internal control regulations solves the problem of internal control, but does not eliminate the phenomenon of internal control failure. In order to protect the interests of investors and enhance the efficiency of capital markets, scholars have focused on the effectiveness of internal control and its influencing factors. Executive is in charge of internal control construction. It is important for improving the internal control situation to study the influence of executive characteristics in the effectiveness of the internal control mechanism.Relying on the principal-agent theory, the top echelon theory and entrenchment theory, we found that executives’ personal and position characteristics can affect their behavior choices, which influences the effectiveness of internal controls.Combining with five goals and internal control deficiencies factors, we established an evaluation index system to measure the effectiveness of internal control.Executive specific characteristics, including gender, age, profession, educational background, ownership status, salaries, CEO duality and tenure, were selected as explanatory variables. Finally, we constructed models and made multiple regression analysis by using 2011- 2014 Shanghai a-share listed companies data, which test the influences of executives characteristics in the effectiveness of internal control.The study found that corporate executive characteristics have a major impact on the effectiveness of internal control. Their age and educational background exist positive correlation with internal control effectiveness. Executive ownership status and salary levels are positive association with internal control effectiveness. The effects of executive gender and CEO duality on internal controls was not significant.The influence of different executives in the effectiveness of internal control is different. If CEO is a management professional, the internal control effectiveness is a high level.CEO tenure and the effectiveness of internal control are inverted U-shaped relationship. CFO profession, CFO tenure and internal control are notrelated. The effect of CEO on internal control is greater than CFO. Therefore,enterprises should employ older and highly educated staffs for senior management positions and make good use of equity and compensation incentives means. Choose a CEO who has management professional backgrounds and focus on assessing the management level of the longer term CEO in internal control.