An Empirical Study About The Relationship Between The Background Characteristics And Heterogeneity Of The Board Of Directors And The Quality Of Internal Control

The major purposes of Internal control is to ensure the safety of assets and to promote scientific operations,that is to say,it will promote healthy development of enterprises in the case of reducing the risk of enterprises.Many governments have issued a lot of internal control-related guidelines,such as “The Sox Act”,“the Basic Rules for Corporate Internal Control”,“the Guidance on Corporate Internal Control”and “the Notice on Accelerating the Construction of Internal Control System for Central Enterprises”.These laws and regulations require listed corporations in China to do the construction of internal control.In addition,the Shanghai Stock Exchange requires the listed companies in Shanghai to disclose their Self-evaluation reports of Internal Control every year,which shows the internal control is accepted and paid attention to by Regulatory Authority.Despite all this,financial fraud,business problems are still emerging in China,such as the financial crisis and financial fraud of old brand "39 Pharmaceutical",Huayuan Group's credit crisis,CAO's financial derivatives speculation and The State Reserve Bureau of copper futures speculation,etc.These negative cases had a bad influence,because these entities are closely related with the people's livelihood,.The cause of the incidents is that the internal control of the enterprises became formalistic.So It is necessary to study the internal control is affected by what factors.Although the internal control system is full participation,but in practice,the management and other senior management take the lead and control role,just as the Basic Rules points out that the board of directors is responsible for the establishment and effective implementation of internal control.The existing literature has been studied on the structural characteristics of the board of directors,such as independence,size,and competency,but the research on the psychological structure of the board is slightly less.Hambirck and Mason(1984)pointed out the psychological structure of the board of directors can affect their individual strategic choice and their background characteristics are related to their psychological structure such as the academic qualifications,tenure,professional background and so on,so we can study the relationship between the background characteristics and heterogeneity of characteristics of the board of directors and the quality of internal control.The process of internal control is the design-implementation-information disclosure.Therefore,the information disclosure is a comprehensive way of internal control.The quality the disclosure of internal control information is a high-level overview of internal control ofthe enterprise,so the quality of internal control is based on the disclosure of internal control information.This paper uses the the Dibo internal control information disclosure index to measure the quality of internal control.This paper chooses the companies listed in Shanghai and Shenzhen from 2014 to 2015 to study the influence of the background characteristics and heterogeneity of the ratio of the part-time directors,overseas background and government background of the directors on the quality of internal control.The results show that: Firstly,the proportion of directors with overseas background in the board of directors is positively related to the quality of internal control,and the higher the heterogeneity,the higher the quality of internal control;Secondly:the proportion of directors who are also the directors of other companies is positively related to the quality of internal control and the higher the heterogeneity,the higher the quality of internal control;Thirdly:The proportion of directors with government background in the board of directors is positively related to the quality of internal control,and the higher the level of government,the better the quality of the company's internal control.Moreover,the higher the heterogeneity,the higher the quality of internal control.Finally,this paper puts forward some suggestions and prospects according to the regression results.