Research On The Influence Of The Equity Capital Cost On The Disclosure Of Internal Control Defects

At the beginning of the 21 st century,there were several financial frauds in large-scale listed companies in the United States,which severely affected the confidence of investors and the public in the U.S.capital market.In order to safeguard the economic order of the country,protect the interests of investors,and regain the public's interest in capital Market confidence,the US Congress enacted the SOX Act in 2002.With the promulgation of the SOX Act as a starting point,all countries have stepped up their emphasis on internal control and followed suit in the United States.They have successively promulgated and implemented internal control laws or bills aimed at their respective market conditions.Since 2008,China has successively issued relevant regulations and guidelines.The disclosure of internal control information has entered the era of mandatory disclosure.Listed companies are compelled to require disclosure of the company's internal control information to the public,including internal control evaluation reports and internal control audit reports.Regulators hope to provide investors with more internal corporate information through the mandatory disclosure of internal control defect information.Then,in the context of increasing unsteady factors in the capital market,through the internal control laws or acts regulating the behavior of listed companies,can ensure the quality of disclosure of internal control defects,reduce information asymmetry between internal managers and external investors,This reduces the potential risks of investors and ultimately lowers the cost of equity capital.This issue is the focus of the political,business,and academic circles,and is also the core of this article.Whether the disclosure of internal control defects in our country can reduce the cost of equity capital of enterprises,this paper first analyzes the current status of internal control disclosure of listed companies in Shenzhen and Shanghai,and uses the data of 2014-2016 of the 1973 listed companies in the Shanghai stock market.For the study sample,the cost of equity capital calculated using the PEG model is the explanatory variable,and the system risk,financial risk,company size,profitability,operating capacity,inventory level,and company growth are taken as control variables,and disclosed from the internal control evaluation report respectively.Internal control deficiencies,non-standard opinions issued by internal control audit reports,and the rectification of internal control deficiencies disclosed by companies in the previous year were the starting point.Through the theoretical development,hypothesis derivation,and empirical tests,the following conclusions were drawn: First,internal control evaluation The report disclosed that the defects in internal control led to the increase in the cost of equity capital.Secondly,compared with the disclosure of defects in the internal control self-assessment report alone,the disclosure of defects in the internal control evaluation report and the absence of the standard opinion of the internal control audit report at the same time have a higher degree of correlation with the cost of capital.Third,there is no clear correlation between the rectification activities based on defects and the cost of equity capital.Finally,for the main problems existing in the internal control of listed companies in China,concrete suggestions are put forward from the supervisory department,the company level and the investor level.The conclusions of this paper have important practical effects on the formulation of government policies,the selection of information disclosure behaviors of listed companies,and investment decisions of investors.