Internal Control?Accounting Conservatism And Cost Of Equity Capital

Capital cost is the response of financing efficiency of a country's capital market.Excessive cost of equity capital will stop the demanders of capital from financing,resulting in low financing efficiency,which is not conducive to the development of enterprises.Considering from the aspect of corporate governance,internal control is an important regulatory factor in corporate governance.Accounting conservatism is the means of accounting supervision.Whether it can play an effective role is affected by the degree of corporate governance.The core of internal control is risk management and control,and accounting conservatism is also a prudent attitude towards risk.Therefore,the effectiveness of internal control has an important impact on accounting conservatism.Strengthening the construction of internal control environment and reducing the possibility of selective disclosure of accounting information by managers are conducive to enhancing the accounting conservatism of listed companies.Therefore,perfect internal control can make the effective information of enterprises fully disclosed,improve accounting conservatism,improve the quality of accounting information,and then reduce the risks faced by investors,the required investment premium will be reduced accordingly,that is,to reduce the cost of equity capital.Most of the existing studies focus on the impact of internal control quality on equity capital cost,ignoring the possible intermediate process variables between internal control and equity capital cost relationship.Considering that accounting conservatism is also an important determinant of the cost of equity capital,the existing research lacks of linking the three variables of internal control,accounting conservatism and cost of equity capital at the same time,and has not yet constructed a chain to prove that internal control ultimately affects the cost of equity capital through the impact of accounting conservatism.Based on this,this paper uses the data of A-share listed companies from 2013 to 2017 to explore the path of the impact of equity capital cost.It proves that accounting conservatism is negatively correlated with equity capital cost,and the quality of internal control is negatively correlated with equity capital cost.At the same time,it is found that accounting conservatism is an intermediary variable between the quality of internal control and the cost of equity capital.The possible contributions of this paper are as follows: 1.From the perspective of research,this paper chooses internal control quality and accounting conservatism as two operational factors to study the cost of equity capital,which makes the conclusions of the study have a strong reference value for practice.Most of the existing studies are internal control and accounting conservatism,accounting conservatism and equity capital cost.This paper will conclude the three factors for the first time.Together,explore its mechanism of action.2.Metrological methods: The variables are measured by the model which has been recently tested by scholars in relevant fields and has strong measurement validity.There are many measurement methods for internal control quality,accounting conservatism and equity capital cost.In the past,few scholars have explained the choice of measurement methods in their research.3.Application of research conclusions: For the first time,this paper constructs the path of internal control influencing the cost of equity capital by influencing accounting conservatism.It is concluded that accounting conservatism is the intermediary variable of internal control influencing equity capital cost,which enriches the theoretical basis of influencing factors of equity capital cost.