Internal Control Quality And Credit Spread Of Chinese Corporate Bonds

Internal control is a dynamic process for enterprises to implement control activities to achieve their goals,and is a very important means in business management.High-quality internal control means that the company's internal control can achieve five basic goals: reporting objectives,compliance goals,operational goals,strategic goals and asset goals.The improvement of internal control quality can meet the needs of enterprises from the inside and the outside.From the perspective of “internal demand”,the internal control management function is conducive to the improvement of the company's operational efficiency and the expansion of the company's value.From the perspective of “external demand”,as an important part of enterprise information processing,it can ensure the financial information disclosed by the company is authentic and legal,and protect stakeholders.In recent years,with reference to relevant foreign experience,China has also attached great importance to improve the quality of internal control of enterprises.In order to standardize and improve the internal control construction of Chinese enterprises,it has successively issued a series of related policies and regulations,such as the “Guidelines for Internal Control of Enterprises”.Until 2014,Chinese enterprises have basically established a comprehensive internal control system.The bond market is important for enterprises' finance.How to prevent bond risks and guide them to reasonable pricing is related to the healthy development of the bond market.For enterprises,reducing bond financing costs is an important goal of business operations.The bond credit spread reflects the bond financing cost.This paper studies whether the quality of internal control can effectively affect the bond credit spread.Based on a lot of related research,this paper discusses the relationship between internal control quality and bond credit spread.This paper takes the data of bond issuance of listed companies in Shanghai and Shenzhen in 2014-2017 as a sample,and conduct an empirical test on the hypothesis.Firstly,this paper examines the impact of internal control quality on bond credit spreads.Secondly,this paper selects internal and external factors respectively,and examines whether the difference in the nature of property rights and the degree of environmental uncertainty will affect the relationship between internal control and bond credit.The study found that the improvement of internal control quality helps to reduce the bond credit spread;compared with state-owned enterprises,the relationship between internal control quality and bond credit spread is more significant in private enterprises;when environmental uncertainty is high,The relationship between control quality and bond credit is more pronounced.The robustness test also proves to support the reliability of the above conclusions.Furthermore,this paper empirically tests the mechanism of the impact of internal control quality on bond credit spreads.The results show that internal control quality can improve the reliability of financial reporting,reduce information asymmetry,and thus reduce bond credit spreads;internal control can reduces the risk of business operations and thus reduces the credit spread of corporate bonds.Considering the important role of bond credit rating in the bond issuance pricing process,the higher the bond credit rating,the smaller the bond credit spread,this paper further examines the relationship between internal control quality and bond credit rating.The results support the above conclusions.The high quality of internal control helps to improve bond credit ratings,which in turn reduces bond credit spreads.Based on the above conclusions,this paper proposes a number of targeted policies and recommendations,analyzes the limitations of the research,and provides a prospect for future research directions.This paper explores the impact of internal control quality on the bond market from the perspective of bond credit spreads,further enriches the research in this field,especially the economic consequences of internal control quality.According to five objectives of internal control,the mechanism of them has been tested theoretically and empirically.It has certain reference significance for the internal control guidelines,which is currently enforced in China.This paper is conducive to enterprises fully understanding the meaning of internal control construction,thus avoiding formalism.At the same time,it has certain practical significance for enterprises to formulate reasonable and effective bond financing policies according to local conditions.