Research On The Relationship Between The Repair Of Internal Control Defects And The Cost Of Equity Capital

The cost of equity capital is the key issue of enterprise financial governance.The defects in internal control will weaken the internal supervision mechanism,restrict the efficiency of financial governance and raise the cost of equity capital.Therefore,plenty of studies are exist in the fields of the internal control defects and the cost of equity capital.However,few researchers have studied this problem from the perspective of internal control defect repair and explored the relationship between internal control defect repair and the cost of equity capital.In view of this,in this paper,A-share listed companies in Shanghai and Shenzhen Stock Exchanges are selected as the research samples,which were revealed internal control deficiencies from 2012 to 2016,and empirically tests are conducted to test whether the repair of internal control deficiencies can significantly reduce the cost of equity capital,and how will different types of defect repair,identified as financial and non-financial internal control deficiencies,impact on the cost of equity capital.Furthermore,the ultimate controller nature will have a significant influence on the company's operations.Therefore,it is also worthwhile to analyze whether the ultimate controller nature will affect the relationship between internal control defect repair and the cost of equity capital.Based on the definition of internal control defect repair and equity capital cost measurement,this paper finally obtains the following conclusions through empirical test:(1)Internal control defect repair can significantly reduce the cost of equity capital.Disclosure of internal control defects will lead to a higher risk assessment from the investors to the enterprises,and active defects repair will reduce the rising cost of equity capital;(2)Repairing financial internal control defects can more significantly reduce the cost of equity capital.It is believed that non-financial internal control defects are difficult to be identified and have a wide range of influences.Even if repair measures are taken,it is difficult to take effect in the short term;(3)By repairing internal control defects the state-owned enterprises can much more significantly reduce the cost of equity capital.In order to maintain the reputation and social image of enterprises,state-owned holding companies will take more effective measures to repair the internal control defects,which can be recognized by investors.The contribution of this paper lies on the innovation resear-ch perspective of the internal control defect repair and in-depth study on impact of the defect repair,the cost of capital,respectively from the financial and non-financial internal control deficiencies.Moreover,the nature of ultimate controller are introduced to further enrich the research on the internal control defect and the cost of equity capital.Finally,this paper puts forward policy suggestions from the perspectives of management,investors and regulators to provide reference for listed companies to repair internal control deficiencies and improve the level of internal control.Meanwhile,in the capital market system construction,this research will help improving the transparency of market information disclosure and improving the internal control norm system,so as to promote the healthy development of capital market.