Research On Correlation Among Internal Control Quality, Incentive Mechanism And Enterprise Agency Cost

With the development and expansion of modern incorporated enterprises, the number of enterprise stakeholders increasingly rises. These stakeholders are not likely to be directly involved in the day-to-day business activities of enterprises, so agency arises at the right moment.An enterprise's operation is supported by the management, while the enterprise's owners, namely, the shareholders, are not directly involved in business activities. Therefore, the management may encroach on the interests of shareholders by taking advantage of information and management right. Such agency cost arose from conflicts of interest between management and shareholders is called the type I agency cost. Conflicts of interest will not only occur between management and shareholders, but also among shareholders. In most of the domestic enterprises, equity is highly concentrated. Minority shareholders hold the vast majority shares and own the absolute control over the company, which means that they can control the overall policy, decision-making, etc. of the company, make self-serving management decisions, and thus ignore the interests of most small and medium shareholders. Accordingly, the agency cost therefrom belongs to type II agency cost. The abovementioned type I and type II agency costs are the commonly referred equity agency cost. Debt financing is an important fund source for enterpriss,so the creditor is one of the important stakeholders of enterprises. In order to gain high profits, shareholders are likely to invest debt capital in risky projects, or continually issue new debt in breach of agreed terms and conditions, which may lead to creditors' failure of taking back the principal and interest, thus posing a serious threat to the creditors'interests. The agency cost between shareholders and creditors in this paper is the type III agency cost. Inappropriate handling of agency issue will not only endanger the existence and development of the enterprise itself, but also harm the interests of shareholders, creditors and stakeholders. Therefore, enterprises shall attach enough importance to the agency issue, and focus on how to reduce all kinds of agency costs.It is believed herein the management of company is in essence the management of personnel. To reduce the agency cost, incentive mechanism and constraint mechanism shall be adopted. Effective incentive measures and internal control quality improvement are of equal importance. The research content of this article is divided into the following several parts:The first part is the introduction. This part firstly introduces the research background and research significance of this article. Secondly, related literature both at home and abroad are reviewed in terms of internal control, incentive mechanism and agency cost, which facilitate the understanding of the research status at home and abroad, the absorption of the existing research results, and awareness of deficiency of previous studies. Finally, the research contents, research methods and technical routes are introduced, and the possible innovation and deficiency are pointed out.The second part is the related theory analysis on internal control, incentive mechanism and agency cost. This part firstly defines internal control, incentive mechanism and agency cost, and then expounds the cause of agency issue from different theoretical perspectives, the effectiveness and mechanism of action of internal control and incentive mechanism. It lays a theoretical foundation for the subsequent empirical study.The third part is the research design. The research hypothesis is brought forward here on the basis of abovementioned theoretical analysis. The sample selection and data sources are stated, and explained variables, explaining variables and control variables are illustrated. Hypothesis ?, ? and ? are put forward respectively based on relation between incentive mechanism and internal control quality, relation between incentive mechanism and agency cost, as well as relation between internal control quality and agency cost. Empirical study is conducted with data of small and medium-sized listed companies from 2011 to 2013 as samples. Finally, empirical research model is designed according to various assumptions and variables.The fourth part includes the empirical test and analysis. This section firstly applies the descriptive statistics analysis on all variables, so as to make a preliminary data observation and analysis and understand the characteristics of variable data; Next, correlation test of data is conducted to check the presence of multicollinearity among variables; Finally, multiple regression analysis is conducted to verify the hypothesis.The fifth part covers research conclusion, suggestions and prospect. This part explains and analyzes on the basis of empirical research and comes to the conclusion; then, advices are offered by combining the conclusion with the actual situations of enterprises, and the subsequent research direction is prospected.