Dynamic Analysis Of Interaction Between Corporate Governance And Internal Control Deficiency

Internal Control was first applied in the field of accounting,auditing,primarily to ensure that financial information was reliable,then gradually has been applied to the management field.As a management tool,Internal Control has a significant effect on improving enterprise overall management level.Therefore,it is the hot topic that how to establish and perfect the internal control system,deepen the internal control operation,supervise the implementation effect of the Internal Control for enterprise managers.The design and implementation of Internal Control are influenced by various factors.On the macro level,it is related to the market environment and industry environment,and on the micro level,it is related to the business situation and the Internal Control system.Among these factors,it is only the micro factors that can be improved,and it can be found that the improvement of internal factors can be solved at the corporate governance level.Therefore,improving the company governance condition enables the Internal Control to be effectively guaranteed in whole process from design to operation.In addition,if the Internal Control deficiency were disclosed,the company must take corrective measures to mitigate the negative effect of this information,and these corrective measures may have an impact on the corporate governance layer from the bottom to top management.In this article,we will explore the mutual relationship between Internal Control deficiency and Corporate Governance in two aspects of theory and empirical research.In the theoretical part,first of all,this paper takes Internal Control as the main line,explains the theory of Internal Control and Internal Control deficiency.Secondly,through the analysis of influence factors of Internal Control deficiency,it can be found that the level of corporate governance factors have significant effect on the Internal Control deficiency.And discussing the consequences of disclosure of Internal Control,it can also be found that some factors in corporate governance have changed with the disclosure,so it can be concluded that corporate governance interacts with Internal Control.Finally,on the basis of reviewing the current relational research on corporate governance and Internal Control,this paper analyses the relationship and the interaction mechanism between corporate governance and Internal Control from the perspective of principal-agent theory and contract theory.In empirical research part,this paper chooses non-financial listed companies as research sample which disclose Internal Control information in 2011 and 2012,learn from some scholars,and take three elements of corporate governance such as shareholding structure,board characteristics and executive management characteristics as the independent variables,the Internal Control deficiency as the dependent variable to explore the impact of corporate governance on Internal Control.Furthermore,we screen and sort corporate governance information that Internal Control deficiency were disclosed in the previous year and after three years,and take the variation of the factors of corporate governance as the dependent variable,the Internal Control deficiency as independent variable to explore the impact of disclosure on the change of these factors of corporate governance,and to creates a dynamic analysis process between Internal Control deficiency and corporate governance.Empirical study shows that in the aspect of equity structure,maintaining high equity concentration,the Internal Control deficiency is not easy to be disclosed,and when the Internal Control deficiency occurred,there is no significant changes in ownership concentration;but improving the equity balance degree,the Internal Control deficiency is easy to be disclosed.In the aspect of board feature,it is likely to disclose Internal Control deficiency with a larger board scale.However,the change of the board scale is not significant affected by Internal Control deficiency disclosure.And,there is no significant interaction between the proportion of independent directors and Internal Control deficiency.In the aspect of executive management level,improving the executive compensation will reduce the deficiency,and after disclosure of Internal Control deficiency,executive compensation will increase.Based on this,this article puts forward that the company should take measures such as increasing appropriately the degree of equity concentration,compressing the board scale,improving the number of independent director,strengthening management incentive to ensure significant of Internal Control in improving the enterprise overall management level from the aspect of corporate governance.