A Study On The Impact Of Internal Control Quality On Stock Price Crash Risk

The crash of the stock price will seriously damage the interests of investors,hinder the development of the company,and even adversely affect the stability and sustainable development of the securities market.However,due to the late start of China's capital market and lack of experience,the stock price crash has occurred from time to time.In this context,finding ways to reduce the risk of stock price crash is of great significance to protecting the vital interests of Chinese capital market participants and stabilizing financial markets.Information asymmetry and principal-agent problems are the fundamental causes of the stock price crash risk.Internal control can coordinate the conflicts of various stakeholders by controlling all aspects of business management activities,and it is an important institutional arrangement to reduce information asymmetry and solve the problem of principal-agents in modern enterprises.Therefore,how the quality of internal control affects the risk of stock price crash is a matter of concern.However,the current literature on the relationship between the quality of internal control and the risk of stock price crash of listed companies in China is scarce,and the research results are not comprehensive.Based on principal-agent theory and information asymmetry theory,this paper analyzes the formation mechanism of stock price crash risk,and on the basis of the influence of internal control quality on principal-agent problem and information asymmetry,it discusses how the quality of internal control affects the risk of stock price crash.Based on the above theoretical analysis,this paper takes the China's A-share non-financial listed corporations from 2007 to 2017 as a research sample,and examines the relationship between the quality of internal control and the future stock price crash of listed companies in China.In addition,in order to explore whether the effect of internal control quality on stock price crash risk will change under different corporate governance structures,this paper further examines the impact of the proportion of independent directors and ownership structure on the relationship between internal control quality and stock price crash risk.The results show that: First,the quality of internal control is significantly negatively correlated with the risk of stock price crash,that is,high-quality internal control can help reduce the risk of stock price crash,and the paper found in the robustness test that the negative correlation between the two is still established during the stock market disaster.Second,in the companies with lower proportion of independent directors,the negative correlation between internal control quality and stock price crash risk is stronger than the companies with higher proportion of independent directors.Which means that the independent director system and internal control have a certain substitution effect in reducing the risk of stock price crash.Finally,in the companies with only a single major shareholder,the negative correlation between internal control quality and stock price crash risk is stronger than the companies with multiple major shareholders.Which means there are also some substitution effect between the presence of multiple large shareholders and internal control to reduce the risk of stock price crash.The above conclusions did not change substantially after controlling for endogenous problems.