Impact Of Internal Control Defect Disclosure On Cost Of Debt Capital

The financial fraud of listed companies has caused huge impact on the capital market.Investors and market regulators have also begun to pay attention to the internal control of the company.The construction of China's internal control system started relatively late,but with the formulation of basic norms and the release of relevant supporting guidelines,the construction of China's internal control system is on the right track.In 2012,China asked the Main Board listed company to disclose its internal control information.The disclosure of internal control defect information was used as an important evaluation indicator of the effectiveness of internal control operations.More and more creditors and other stakeholders were concerned.This paper,with the support of relevant theories,empirically analyzes the impact of the disclosure of internal control defects on the cost of debt capital by using the year after mandatory disclosure of internal control information as a sample interval.First of all,this article sorts out the literature of the relevant internal control defects and cost of debt capital,findings are mostly analyzed from the perspective of judgments,classification criteria,impact factors,and effects.The impact of internal control defect disclosures is differentiated by general,important,and major deficiencies,or refined according to internal control factors,while it is less involved in other standards,and most of them do not take into account the lag in information transfer.This article takes the year after the mandatory disclosure of internal control information in China as the sample interval to study the impact of disclosure of internal control defects on the cost of debt capital for the following year.The sample is further divided according to the nature of different equity and the degree of financial marketization in the region,and studied the degree of correlation between the two separately under different groups.Because how to divide the types of internal control defect does not form a unified standard,based on domestic and foreign literature,this paper divides the defects into internal control defects at the accounting level and internal control defects at the company level,and empirically analyzes the impact of different types of internal control defects on the cost of debt capital.Secondly,on the basis of principal-agent theory,information asymmetry theory and signal transmission theory,this paper puts forward four assumptions,and constructs three models of empirical analysis based on assumptions,taking the main board listed companies from 2013 to 2015 as sample,and verify the above four hypotheses separately.Through the descriptive statistics,correlation analysis,and regression analysis of each variable,the following four conclusions are drawn:(1)The disclosure of defects in internal control by the company will lead to an increase in the cost of debt capital,indicating that after disclosure of the internal control defect,the creditor will require higher returns to avoid the risks brought by efficiency,asset security,and reliable information.(2)If a non-state-owned enterprise discloses a defect in internal control,compared to a state-owned enterprise,it will have a greater impact on the cost of debt capital.(3)If the area where the enterprise is located is less financially market-oriented,compared with companies with a higher level of financial marketization in the region,the disclosure of internal control defects will have a greater impact on the cost of debt capital.(4)If companies disclose defects in internal control at the company level Compared with the internal control defects at the accounting level,it will have a greater impact on the cost of debt capital.Finally,according to the research questions and empirical research results,some suggestions are put forward for the improvement of the internal control system from the perspective of the listed companies and regulators.The study of this article will inevitably have limitations and areas to be improved.It only hopes to have a certain enlightening effect on the exploration of other scholars.