Study On The Market Contagion Effect Of Internal Control Defects Of Listed Companies

As the guarantee mechanism of normal operation of enterprises,internal control is in the core position of enterprises.Effective internal control can not only enhance the credibility of the financial statements of enterprises,but also ensure that investors make correct decisions according to the situation of the company.The continuous occurrence of the company's financial fraud events,making the internal control defects in investors and domestic and foreign regulatory authorities in the unprecedented rise in attention.As a negative effect caused by "congroup effect",the contagion effect refers to that the consequences of a subject's adverse events directly or indirectly affect other subjects with domino effect and produce negative information.The contagion effect exists in the capital market.It is considered as a typical market risk transmission mechanism because it accelerates the diffusion of bad information.Moreover,with the increasingly close relationship between the upstream and downstream enterprises in the same supply chain and the enterprises in the same industry,the consequences of the contagion effect are gradually increasing.The contagion effect will not only spread bad information rapidly,but also expand the scope of economic consequences and increase the impact of economic consequences.Based on a series of bad economic consequences,the contagion effect is gradually concerned by scholars at home and abroad.In this paper,the event study method and multiple regression analysis method are comprehensively used to select 36 A companies listed on the Shanghai Stock Exchange and Shenzhen Stock Exchange in 2012-2017 with major defects in internal control and published,taking the disclosure of major defects in internal control as bad information Listed companies are regarded as the source of infection,and other companies in the industry where the source company is located are regarded as the object of infection.This paper focuses on three issues:first,whether the major defects of internal control can produce market reaction to individual enterprises after disclosure?Second,does the major defect of internal control have industrial contagion effect?Third,what are the influencing factors of infectious effect?The empirical results show that the major defects of internal control will not only lead to the negative market effect of the enterprise itself,but also cause the stock price to fall.It will also have a significant contagion effect in the capital market,and cause the decline of the stock value of other related enterprises in the same industry.At the same time,the contagion effect will be different because of the size of the company,the nature of property rights,the degree of marketization,the concentration of equity,the incentive degree of executive compensation,and whether the listed company combines two jobs.The conclusions of the study have policy implications for enterprises,which not only deepen their understanding of risk,but also have reference significance for their effective implementation of risk prevention and control in the capital market:first,enterprises should reduce the possibility of major defects in internal control;second,enterprises should strengthen the control of information;finally,enterprises should strengthen internal supervision and take corresponding measures to ease the internal control Infection effect of major defects.