A Study On The Effect Of Internal Control Quality On The Relationship Of Monetary Policy And Corporate Underinvestment

The problem of underinvestment is very common in China. The adjustment of monetary policy will affect the credit financ e of companies, which has important influence on investment decisions for companies. Facing the adjustment of monetary policy, the enterprise will not bear the risk passively. Companies can alleviate the impact of the internal and external environmental changes by integr ating its own resources and enhancing the anti-risk ability. How does the adjustment of monetary policy affect investment spending of companies? Internal control system is an important risk-managing system. Could good internal control quality help enterprise integrating resource and alleviating the impact of monetary policy changes on corporate underinvestment?The paper reviews a large amount of literature guided by the above problems and mainly discusses the effect of internal control quality on the relationship of monetary policy and company underinvestment. The paper adopts the method of combining theoretical analysis and empirical test. Taking the microscopic conduction theory of monetary policy, PDCA cycle theory, the agency theory and the theory of information asymmetry as the theoretical basis, the paper analyzes the mechanism of the influence of the macro monetary policy on corporate underinvestment and the relief mechanism of internal control quality. Using the data of A-share listed companies of China from 2003 to 2013, this paper studies the moderating effect of internal control quality on relationship of monetary policy and corporate underinvestment empirically. The results show that the tighter the monetary policy is, the more serious the underinvestment in listed companies will be. Improving the quality of internal control can significantly weaken the relation between monetary policy and the extent of underinvestment in listed companies. In the eastern part with higher level of financial development, the effect of internal control quality is significant both on the state-owned enterprises and on the non-state-owned enterprises. In the Midwest with lower level of financial development, the effect of internal control quality on the state-owned enterprises is more significant than the non-state-owned enterprises. Lastly the paper gives specific suggestions about how to improve the internal control system, optimize the effect of monetary policy in macroeconomic regulation a nd control and reform the banking systerm in China.