Marketization Process?Internal Control Quality And Debt Financing Costs

Enterprise development needs financial support,since China's capital market has not yet fully developed,among the alternative financing methods,raising funds by issuing stocks is not popular.The use of debt to raise funds is efficient,timely and necessary,the cost of debt financing should be concerned.Reviewing the literature,the predecessors' research on debt financing mainly focuses on availability,scale,duration and structure of capital.There is not much research on debt financing costs.However,the cost of debt financing is too expensive to be inconsistent with the principle of economic efficiency.Internal control is the “firewall” of the enterprise,and its responsibility is to prevent,detect and correct risk factors that may lead to failure to achieve corporate strategy in a timely manner.The construction of internal control needs to occupy and consume enterprise resources.For enterprises that pursue economic benefits,the benefits of establishing internal control may not be sufficiently attractive.Internal control serves strategic goals,helps improve the quality of corporate financial information,narrows the gap between internal and external information,and greatly enhances the trust of external information users.Therefore,it is reasonable to assume that the internal control have an impact on the cost of debt financing costs.This study will focus on the relationship between the internal control and debt financing costs,exploring whether the former will have an impact on the latter and its specific impact.In the literature review process,it was found that most of the research is mainly based on the micro level,and the impact of macro environmental factors on the relationship between the two is less comprehensively considered.However,independent of external environmental factors,it is biased to think about the relationship in isolation.Any enterprise that operates under the influence of the macro environment will have an impact that is worth exploring.At the same time,taking into account the differences between China's institutional environment and other countries,and in order to enrich the research content,further analysis of the impact of the nature of corporate property rights on the above relationship.This paper is to study the relationship between internal control and debt financing costs,consider the impact of differences in the degree of marketization and the nature of property rights,empirically test whether internal control can effectively contribute to corporate debt financing in order to achieve strategic objectives.Based on the content of the literature review,this paper deeply explores the relationship between internal control quality and debt financing cost,and comprehensively considers the impact of differences in the degree of marketization in different regions on the relationship between the two,and introduces further analysis of the nature of property rights.Empirically test whether internal control can effectively contribute to the debt financing of enterprises in order to achieve strategic goals.The first part of this paper briefly outlines the background of the research selected for this topic,and further elaborates the practical significance of the research in combination with the background.Summarize the core content of the research,build the article framework,point out the innovation of this paper,and clarify the shortcomings caused by research ability and actual conditions in the research process.In the second part,we review the literature related to internal control,and summarize the factors that affect it and the economic consequences that may occur after the implementation of the system.Secondly,it sorts out the factors affecting the cost of debt financing,and the possible economic consequences,and finally combs the literature related to the relationship between internal control and debt financing costs The third part summarize the theory involved in this paper.It mainly defines the concept of this paper,which is conducive to the development of the subsequent articles.It also expounds the theoretical basis and mechanism of the paper,laying a foundation for the subsequent hypothesis of the article.The fourth part is based on the third part,and the theoretical analysis derives the hypothesis of the article.According to the theory of information asymmetry and the theory of principal-agent,it can be seen that information risk and agency problems affect the creditor's judgment at different levels,resulting in different necessary risk premiums for lending funds.Internal controls help reduce negative issues caused by information asymmetry and agency relationships Based on this,hypothesis 1 is proposed:under other conditions,the relationship between internal control quality and corporate debt financing cost is significantly negatively correlated.Based on the current situation of China's economic transition period,the progress of reform in different regions is different.In areas with a high degree of marketization,corporate information needs to be disclosed as required,and competition in the market is more adequate.Internal control,whether from the perspective of reducing information risks or controlling business risks,will be weakened by the substitution of market conditions.Based on this,hypothesis 2 is proposed: under the other conditions unchanged,there is no significant negative correlation between internal control quality and corporate debt financing costs in areas with a high degree of marketization.According to the soft budget constraint theory and institutional theory,in the region where the market-oriented reform is relatively slow,the government's “paternalism” profoundly affects government behavior,which may lead to the possibility of obtaining low-cost debt funds even if the financial performance of state-owned enterprises is not good.Non-state-owned enterprises have no “backing” that they can rely on,and they can only rely on their own strength to obtain funds.Therefore,put forward Hypothesis 3,that is,under the other conditions unchanged,in areas with low degree of marketization,the high quality of internal control of non-state-owned enterprises has a more significant negative effect on the increase of debt financing costs.For state-owned enterprises,this effect is not significant.After proposing the three hypotheses of this paper,the fifth part determines the sample empirical test and introduces the nature of property rights to further analyze Hypothesis 1.The final research results show that the correlation between high quality internal control and debt financing costs is significantly negatively correlated,and further research finds that this negative correlation is more intense in state-owned enterprises.At the same time,the research results also confirm that in the region with high marketization level,the relationship between internal control and debt financing cost is no longer significant,but in the region where the marketization index is low,that is,the reform progress is relatively slow,the high quality of internal control of non-state-owned enterprises is more effective in reducing the cost of debt financing.Finally,in the sixth part,the corresponding policy opinions are put forward in combination with the research conclusions.Advice from both the market and the business: Based on market perspective,the government needs to reduce interventions,Grasp the scale of macroeconomic regulation,establish and improve a fair market competition mechanism,harden the financing constraints,and improve the construction of internal control laws and regulations,to make the market healthy and sustainable development;Based on enterprises perspective,companies need to improve the quality of internal control,enhance the overall strength of enterprises,improve market competitiveness,independent choice of financing methods,flexible financing,promote the steady development of enterprises.