Internal Control Quality,Institutional Investors And R&D Investment

"To be strong and rejuvenated,China must vigorously develop science and technology,and strive to become the world’s major scientific center and innovation highland." Chinese President Xi Jinping emphasized when he delivered an important speech at the opening of the 19 th Meeting of the Academicians of the Chinese Academy of Sciences and the 14 th Meeting of the Academicians of the Chinese Academy of Engineering in Beijing on May 28.Innovation is the only way for China to build a strong country in science and technology in the world and to climb the peak of science and technology in the world.Innovation has important practical significance for accelerating the transition from "investment-driven" to "innovation-driven" and from "made in China" to "created in China".Mastering the current initiative for innovation and development affects the country’s future.As an important subject of China’s national economy,enterprises are also important to promote innovation-driven development in China.The human,material and financial resources required for enterprise innovation are ultimately reflected in the continuous investment in research and development.However,due to the positive externalities,risks,large investment,long cycle and other characteristics of corporate innovation,as well as the self-interest behavior tendency of major shareholders and management,corporate R&D expenditure tends to be lower than the social optimal level.Internal control as a listed company’s internal governance arrangement is related to the allocation of corporate funds,technology and human resources,as well as the management and control of risks.It is also related to the realization of the company’s long-term strategic goals,which will inevitably affect the company’s R&D decisions.With the rise of institutional investors in the capital market,the increase in the shareholding scale makes their exit strategies costly and there are liquidity risks.Due to their advantages such as capital,experience,information and scale effect,they gradually choose to "vote by hand" to actively participating in corporate governance affects the operation and decision-making of enterprises.So what is the relationship between the internal control quality,institutional investors,and R&D investment?Based on this,this article uses a combination of theoretical analysis and empirical research.First,it reviews the existing literature on internal control quality,institutional investors,and R&D investment.Based on the relevant theoretical foundations,it analyzes and proposes three major falsifiable hypotheses.Then,wewill take 10534 data samples of A-shares in Shanghai and Shenzhen from 2010 to2017 as the research object,Through empirical analysis to explore the impact of the quality of internal control on R&D investment and the regulatory effect of institutional investors’ overall holdings on this effect,Based on this,it is further explored whether different types of institutional investors and different property rights have a regulating effect on the above relationship.Specifically,the main research contents of this article include:(1)The impact of internal control quality on corporate R&D investment;(2)Whether institutional investors’ overall shareholding and internal control quality play a collaborative governance role in R&D investment;(3)Institutions investor heterogeneity is whether there is a difference in the regulatory role of stable institutional investors and transactional institutional investors in the internal control quality affecting R&D investment;(4)How does the nature of different property rights affect the governance effect of institutional investors.The research in this article theoretically enriches the study of the economic consequences of internal control quality,the study of institutional investors’ participation in corporate governance effects,and the research of influencing factors of R&D investment.It improves the internal control of enterprises,guides institutional investors to participate in corporate governance,and ultimately promotes the transformation and upgrading of enterprises and the realization of the country The strategic goal of innovative development has theoretical and practical significance.This paper uses sample data to conduct empirical tests on research hypotheses,and to ensure the reliability of research results through robustness tests.Finally,the following research conclusions are obtained:(1)The internal control quality of the enterprise is positively correlated with the R&D investment,that is,the improvement of the quality of internal control can promote the increase of the enterprise’s R&D investment;(2)After introducing the crossover between the overall holdings of institutional investors and the quality of internal control,it was found that the overall holdings of institutional investors can strengthen the positive correlation between the quality of internal control and R&D investment of enterprises,that is,institutional investor holdings has a positive regulating effect on the quality of internal control and R&D investment;(3)Considering institutional investor heterogeneity,they are classified according to the stability of institutional investors.It is found that different types of institutional investors have different regulatory effects on the internal control quality and R&D investment.Specifically,Stable institutional investors canstrengthen the positive correlation between the internal control quality and R&D investment,while the role of transactional institutional investors in regulating the quality of internal control and R&D investment is not significant;(4)After further distinguishing the nature of property rights,it was found that the institutional environment of enterprises has a certain impact on institutional investors’ participation in corporate governance.The specific manifestation is that the overall holdings of institutional investors and the stable institutional investors can positively regulate the relationship between the internal control quality and R&D investment in private enterprises,while in state-owned enterprise,whether it is an institutional investor’s overall shareholding or differentiated institutional investors,has no significant role in regulating the relationship between internal control quality and R&D investment.The following innovations have been made in this article:(1)The topic of this article is relatively novel.It includes the internal control quality,Simultaneous researched the impact of internal governance institutional arrangements and external governance mechanisms on corporate R&D investment;(2)The research content of this paper considers that institutional investors with different stability characteristics have differences in their enthusiasm for participating in corporate governance and governance effects due to different investment concepts behaviors,discuss the differences in the regulatory effect of institutional investors’ heterogeneity.The research conclusions of this article will provide reference policy recommendations for companies,government agencies,and institutional investors.