Research On The Impact Of Internal Control Audit Report Disclosure On The Cost Of Equity Capital

In the early 21 st century,a series of financial fraud scandals of large international listed companies expose that there are major problems existing in the internal control aspect,which causes great concern on the enterprise internal control effectiveness by the regulators and market participants.From the enactment of the SOX act which first requires companies need to audit the effectiveness of the internal control to the issue of the enterprise internal control basic norms in China,regulators around the world are working to improve the system of internal control and standardize the disclosure of internal control information.The capital market is full of unstable factors,at present as for the disclosure of internal control information,China requires to change voluntary disclosure into the present compulsory disclosure,that is to say,when listed companies disclose annual financial reports,it is compulsory for them not only to disclose the self-assessment report of the management but to disclose the internal control auditing reports issued by certified public accountants.Regulators hope that through the internal control information disclosure,it can provide non-financial information for investors.So,if it can guarantee the quality of the capital market information? Whether it can reduce the information asymmetry between enterprises and investors,reduce the risk of information that investors receive,so that investors can make decisions rationally,and eventually reduce the cost of equity capital?These issues have always been the focus of the regulatory authorities,and are also the core of this paper.In the theoretical sense,to explore the relationship between them can enrich the study of internal control information disclosure;In the real sense,it can encourage enterprises to strengthen the construction of internal control,so that investors can accurately estimate the cost of investment and protect the interests of investors,maintain the stable development of the market.This paper firstly induces and summarizes the domestic and foreign research achievements about the information disclosure of internal control,from the principal-agent theory,asymmetric information theory,signal transmission theory and efficient market hypothesis theory,it analyzes the mechanism that how internal control information disclosure impact the cost of equity capital.Using the data from 2009 to 2014 in Shanghai and Shenzhen A-share listed companies as the research sample,PEG model whichcalculates the cost of equity capital as the explanatory variable,financial risk,profitability,company size,growth ability,book value ratio,annual audit opinion type,the company’s governance level as control variables,we prove that how deep the disclosure of internal control audit reports impact the equity capital cost,and compare the influence degree under the different systems,and also analyze the different influence between state-owned and non-state-owned holding companies.Research found that the internal control audit report disclosed by listed companies is an efficient incremental information for investors,the standard advice of internal control audit report can be used to convey to investors as high quality signal and can enhance investors’ confidence in corporate investment,enterprises can also significantly reduce the cost of equity capital.Compared with non state-owned enterprises,the state-owned enterprises internal control audit reports have more significant influence degree on the decreasing equity capital cost.Under the background of mandatory disclosure,as the incremental information,the signal transmission function of the internal control audit report gradually weakens.Finally,according to the conclusions of the empirical research,we put forward some pertinent suggestions to the regulatory agencies,listed companies,accounting firms and investors,and also put forward the limitations of this study and the prospects of the research.