An Empirical Analysis Of The Effect Of Internal Control On Financing Constrains

Based on the data of Shanghai and Shenzhen A shares of listing Corporation during 2009-2013, combining with the nature of property right and institutional background of enterprise property in China, this paper explores the influence of internal control on financing constraints and mechanism from the micro level. The study found that internal control and financing constraints have a significant negative correlation, the higher the quality of the enterprise internal control and its factors appears, the smaller financing constraints will be. The reason is that high quality internal control can enhance the transparency of information and improve the corporate governance structure; then reduce the information asymmetry and agency costs between managers and outside investors, thereby reducing financing constraints. When exploring the mechanism of internal control on financing constraints, this paper finds that the higher the degree of information asymmetry and agency costs are, the greater the role of internal control on financing constraints has. Further study shows that the nature of property rights will significantly affect the relationship between internal control and financial constraints. Under the same conditions, this influence is more remarkable in the non-state industrial enterprises compared with the state-owned enterprise. The external environment will also significantly affect the relationship between internal control and financial constraints, internal control decreases financing constraints more effectively in the areas which the degree of marketization is higher; and for the relatively low level of market area, the function of internal control to financing constraints is reduced. Finally, this paper puts forward some relevant suggestions on the problem of internal control and financing constraints.