An Empirical Study On The Relationship Between Executives Change, Internal Control Weakness And Their Remediation

After more than two decades of development in the nationwide capital market,the number of listed companies in China has approached 3,500.As the top performers of listed companies,the executives represent the latest developments of listed companies,therefore the executives of listed companies are highly valued by Media and investor.Coupled with the well-paid position of senior management positions,it should be said that being a senior executive of a listed company is an enviable task.In recent years,the frequent changes of executives in listed company have attracted people's attention.As the "fame and prosperity" career in people's eyes,why the executives quickly left after taking office? In addition to the brief descriptions such as “personal reasons,dismissal,and others” in the announcement,are there any deep reasons for executive changes?The abnormal change events of executives often indicate that the internal control of the company is flawed.Therefore,it is of great significance to study the signal transmission function of the abnormal change events of executives to standardize the mechanism of senior management changes and strengthen the disclosure of relevant information of senior management changes.Using signal transmission theory as an entry point,this paper take the change of the executives of all A-share listed companies from 2012 to 2016 as a research sample,and selects internal control material weakness as an alternative variable to corporate governance issues.Through comparing the differences of internal control material weakness among the three types of sample companies(including abnormal changes of the executives,normal changes of the executives and non-changes in executives),the signal transmission function of abnormal changes of executives were explored.The empirical test results show that the normal changes of executives do not signal the existence of material weakness in the company's internal control.Compared to companies with normal changes in senior management and those without executive changes,the probability of disclosing internal control material weakness is significantly increased in the companies with abnormal changes in executives.Therefore,abnormal changes in executives can indeed signal the low quality of the company's internal controls.In addition,compared to the changes of the executives in state-owned listed companies,the correlation between executives changes and internal control material weakness is stronger in non-state-owned listed companies,indicating that although abnormal changes in seniorexecutives can transmit signals that the company has internal control defects,however,this signal transmission function has been affected by the nature of ownership.Non-stateowned company executives' abnormal changes are more sensitive to internal control risks.Finally,in the following year after the change of executives,the company's disclosure of internal control defects has been significantly reduced,indicating that as a penalty mechanism against senior executives,the company's senior executives' change has played a certain role in improving corporate governance.