The Research On The Governance Effect Of Internal Control And Heterogeneous Institutional Investors:Substitutive Or Supplementary?

The marketization and legalization is the development direction of the 13th Five-year Plan capital market reform.As an important force in the capital market,Chinese institutional investors rely on professional analysis team,information and financial advantages,actively participate in corporate governance with rapid development,and play an important role in promoting the healthy development of capital market.The government has always attached great importance to the governance of institutional investors,Opinions of the State Council on further promoting the healthy development of the capital market requires further urge institutional investors to participate in corporate governance.However,as a kind of external governance power,heterogeneous institutions shareholding may have different governance effect,and also different between internal governance mechanism.It has an important reference value of playing the governance effect of institutional investors better so as to promote the healthy development of the capital market,is to clarify the governance effect relation problem between the heterogeneous institutional holding and internal governance mechanism.In view of the importance of internal control in the corporation governance mechanism,in this paper,the internal control quality as the corporation's internal governance measures,based on the perspective of earnings quality,empirical tests the heterogeneous institutional shareholding's performance of corporate governance in the management of earnings manipulation under different levels of internal control.Our study found that relative to foreign or short-term institutional shareholdings,local or long-term institutional shareholding is more conducive to improvise the quality of the accrual and reduce earnings noise,local or long-term institutional shareholding of the governance effect is more pronounced in the non-state-owned enterprises.Local or long-term institutional shareholding of the governance effect due to the difference of the internal control level of management and presents the pronounced differences.When the corporation internal control management level is low,such as having a substantial internal control defect,local or local long-term institutional investors in improving the accruals quality and reduce the effect of noise on earnings management pronounced decreased,this phenomenon generally does not change along with the change of property rights.These results indicate that,heterogeneous institutional shareholding cannot play a role of alternative governance when the governance effect of internal control is poor,the governance effect is weakened with the decrease of the level of internal control governance,and the two is complementary rather than substitute.The above findings enrich the existing literature in the discussion of internal control and institutional investors,show the different institutional investors plays governance effect depend on the path in the external governance power capital market.That is,the governance effect of heterogeneous institutional shareholding cannot be separated from the firm's internal governance mechanism,the existence of substantial defects in the internal control of a firm reduces the governance effect of the heterogeneity of institutional shareholding.So,the research of this paper is not only an important supplement of the literature on the economic consequences of internal control,but also help to deeply understand the mechanism of how can heterogeneous institutional shareholding influence corporate governance,and enrich literature of economic consequences of heterogeneous institutional investors.At the same time,our study provides empirical reference for the practical sector and regulatory agencies in improving corporate governance and strengthening investor protection.