Research On Impact Of Internal Control Quality On The Cost Of Capital Of Listed Companies

The construction of internal control of China is entering the rapid development period. Since framework documents of internal control have been released by Ministry of Finance and other four ministries, the market realized the importance of internal control. On the other hand, as the most significant factor which influences enterprise's profit and value, cost of capital is the most important information shareholders and government concern about. Could internal control effectively lower cost of capital? Specifically, Could internal control lower cost of equity capital and cost of debt capital? Moreover, as the safeguard of internal control, could corporate governance has synergistic effect on the process of internal control influencing cost of capital? The focus of this thesis is to answer these questions.The thesis summarizes the research of scholars on the relationship between internal control and cost of capital firstly. We find the deficiencies of domestic and international research and propose our research direction through the review. Based on above, we describe the theoretical basis of how internal control affects cost of capital trough Principal-Agent Theory and Efficient Securities Market Theory, which lays a solid theoretical basis for the followed empirical studies. Secondly, based on all internal control related papers published at core domestic journals in recent 3 years, we establish the Internal Control Evaluate Index(ICEI) according to scholars' recognition and then evaluate the internal control quality of A-share listed companies in Shanghai stock exchange from 2011~2012, finding that the internal control quality is in the upper level in general, the internal control quality of AH stock pilot companies is higher than other companies, and the internal control quality in 2012 is higher than that in 2011. Thirdly, we select A-share listed companies which meet the requirements as samples. We use Linear Regression Model to observe the influence of internal control on cost of capital from the aspects of cost of equity capital and cost of debt capital. We also observe the synergistic effect between corporate governance and internal control. The results show that effective internal control could lower the cost of equity capital and the cost of debt capital significantly. Meanwhile, corporate governance accelerates the effect of internal control reducing the cost of equity capital, but debtors don't acknowledge the synergistic effect. Finally we put forward some recommendations on how to perfect Chinese internal control system and lower cost of capital on the grounds of the empirical results.The thesis establishes the Internal Control Evaluate Index based on scholars' recognition and evaluates internal control quality of listed companies. We also makes empirical test to analyze the effects internal control on cost of capital and the synergistic effect of corporate governance. It makes important practical significance on the support to the assertion of that internal control could lower cost of capital and further perfecting internal control system.