Research On The Influence Of Compulsory Internal Control Audit On Capital Cost Of Chinese Listed Companies

In 2001,the outbreak of accounting fraud happened in Enron Corp and WorldCom caused great changes in internal control.The United States Congress issued the Sarbanes-Oxley Act;China has also promulgated a series of laws and regulations to continuously improve the system in internal control.The Ministry of Finance and the SFC issued that ―The notice about the companies listed on the main board implemented the internal control system of norms batch classification in 2012" and requirements of the listed companies of China's main board to carry out internal control audits and disclose internal control audit reports from 2012.By 2014,companies listed on the main board have been included in the enforcement scope,except for special circumstances.Under this background,it is of great significance to study the influence of the compulsory internal control audit on the capital cost of enterprise,the relevant decisions made by the agent and the client,the perfection of the system in internal control and the standardization of the internal control auditing.This paper enriches the study of the influence of internal control audit on capital cost,and has a certain theoretical significance.Firstly,this paper expounds the background and the methods of researching on the topic selection,then combs literatures at home and abroad,defines the basic concepts,then analyzes the mechanism of the compulsory internal control audit to the equity capital cost and the liability capital cost by using the principal-agent theory,information asymmetry theory and signal transmission theory.The research hypothesis was put forward;the empirical tests were carried out.Regarding the cost of equity capital,the data from 2009 to 2016 of 646 companies listed on the main board and included in the mandatory internal control audit scope were taken as the research samples.The prior equity capital cost was calculated by using the PEG model,and tested from the angle of mandatory before and after.Inspection findings the listed companies who included in the mandatory internal control audit scope and disclosed the standard no reservations internal control audit report,the mandatory equity capital cost is significantly lower than the cost of equity capital before mandatory.Further researches on property rights finds that,compared with state-owned listed companies,the compulsory internal control audit has more influence on equity capital on private listed companies.The predicted median earning per share is instead by the mean value to recalculate the cost of equity capital in the PEG model for robustness testing,so the conclusion is verified again.For the cost of liability capital,it is calculated as the ratio of the interest expense to the average of the total debt at the beginning and in the end of the year,and the effect of the mandatory internal control audit on it is examined.It is found that in the scope of mandatory internal control audit and the disclosure of standards without reservations internal control audit report help enterprises to obtain debt financing at lower cost.Using the ratio of the financial expenses to the average of the total liabilities at the beginning and in the end of the period to calculate the liability cost,a robustness test was conducted and the conclusion was further supported.Based on the conclusions all above,the following suggestions are put forward: the supervisory department should standardize and refine the internal control auditing standards,strengthen the supervision and management of auditing institutions to ensure the quality of internal control audits,and expand the scope of implementation of mandatory internal control audits steadily;Enterprises should implement the internal control system and make full use of the effect of the internal control audit;Social audit institutions should strengthen independence and professionalism and improve the quality of internal control audit services.Investors should pay attention to and make full use of the information disclosed in internal audit report.Finally,the limitations of the study are discussed and the future is prospected.