Study On The Relationship Between The Enterprise Culture Capital And Internal Control Effectiveness

China's A-share market has been developed for nearly three decades, but the development process is full of twists and turns. "Yinchuan Guangxia Scandal" and"Eastern Electronics Scandal" have dealt a heavy blow to enthusiasm of investors.Recently, several similar financial frauds,including "Lvdadi Biotech Scandal" and"Wanfu Biotech Scandal" and "Nantex Scandal", have happened,thus greatly dampening investors' enthusiasm and impairing their trust of listed companies and the management level. After the attack of the above series of financial scandals, supervision department have started taking a new into internal control and its efficiency, and attempted to highlight importance of internal control in the form of rigid systems.However, the compulsory rules of conduct cannot absolute compel conformity from human behaviors. The final control effect is decided by the actual control behaviors. An important factor impeding efficiency of the internal control system is found with the"soft control",that is,weak restriction of the control environment. Compared with rigid restriction of formal systems, the control environment is more reflected as a soft restriction of informal systems. To solve the problem, it is necessary to combine cultural capital of an organization for an in-depth analysis. Efficiency of internal control and its influencing factors have been a focus of not only auditors, but also economists and sociologists. Under the research background, this paper introduces the concept of"cultural capital" from sociology to organizations' management activities, examines the mechanism of cultural capital influencing efficiency of internal control, extracts three factors (entrepreneurs' abilities, trust mechanism and corporate values), and verifies the influence of cultural capital on efficiency of internal control using the empirical approach.Based on the Sarbanes-Oxley Act ("SOX")and the China's Guidance for Applications of Internal Control in Organizations (2010), and combining the concept of cultural capital,it is inferred that internal control is not only a set of rigid control mechanism and control system, but also a flexible cultural management activity combining corporate culture, or a "man controlling man" activity. From the perspective of organization management, internal control is subject to both spiritual and material factors. On the one hand, it is an economic approach of organization management; on the other hand, because of differences of cultural environment in different organizations,internal control is endowed with different cultural attributes. Like a bond connecting and coordinating stakeholders, cultural capital first permeates certain concept in an organization, and assimilates the thinking of members in the organization to promote joint cooperation and mutual trust among stakeholders. Then, cultural capital comes in deeper to influence decision-making thinking and behavior pattern of stakeholders.Finally, cultural capital influences the realization style and degree of organization objectives. Based on the above analysis, it can be seen that a full play of the internal control system cannot be separated from cultural capital of an organization. Therefore,internal control can just guarantee "reasonable" rather than "efficient" realization of organization objectives, because the realization of organization objectives is jointly influenced by many factors. Among these factors,"man" is the most important influencing factor, and cultural capital has a powerful guiding effect on the ability and behavioral pattern of "man". Therefore,efficiency of an organization's internal control should be combined with cultural capital and the organization's practical situations.Cultural capital referred to in this paper is the cultural capital in the narrow sense.In the broad sense, cultural capital includes cultural industries, cultural items and other material elements. These materialized outcomes, after entering the production link, are reflected as physical capital, so in essence these materialized outcomes are physical capital. Of course, cultural capital in the narrow sense cannot fully cover the whole scope of cultural capital. For example, it is hard to quantify or specify intangible elements like trust and its relationship with cooperation. However, these intangible spiritual elements indeed have a huge impact on economic and social development.Therefore, based on the research of Xia (2012), a Chinese scholar, this paper defines cultural capital of an organization as a sum of spiritual capital and structural capital,which is influenced by entrepreneurs' ability, trust mechanism and corporate values.Scholars have deepened their research of internal control from explicit factors to implicit factors. Management scientists shift their attention to an implicit rule behind the system, that is, culture. In the part of normative analysis, three factors through which cultural capital influences efficiency of internal control are extracted, namely entrepreneurs' abilities, trust mechanism and corporate values, based on previous scholars' research findings about cultural capital,and the influence mechanism is also expounded. In the part of empirical analysis, questionnaire survey is employed to obtain the first-hand research data. Based on the data acquired, a multiple regression model is built for further analysis and research. The research findings suggest that cultural capital is an important factor influencing efficiency of internal control; By the entrepreneur ability three aspects, the trust mechanism and the enterprise values affect internal control effectiveness.This paper studies the relationship between cultural capital and efficiency of internal control following the theoretical framework below. First, influence of entrepreneurs' abilities on efficiency of internal control. In essence, entrepreneurs'abilities are a combination of spiritual temperament, positive faiths and attitudes, and function on development of an organization in the form of strategy-formulation ability,management ability, interpersonal ability, learning ability and opportunity-seeking ability. "To do a right thing is more important than to a thing correctly.” If entrepreneurs have positive ability capital, efficiency of internal control in an organization can be significantly improved. Outstanding strategy-formulation ability can help an organization correctly position itself on the market and formulate correct strategic goals.Outstanding management ability can contribute to building an efficient and reasonable governance structure, prevent against operation risks, and guarantee realization of operation objectives. Strong interpersonal ability can help create a harmonious internal and external operation environment for an organization, and ensure the realization of strategic goals. Active learning ability can boost update of an organization's knowledge,abilities, systems and practices so that it can get adapted to constant environmental changes to improve the organization's flexibility and resilience. Alertness to opportunities can help an organization seek opportunities ahead of its competitors in the ever-changing market,maintain the organization's sensitivity to potential risks and dangers and nip these dangers and risks in the bud.Second, influence of trust mechanism on efficiency of internal control. Trust is a psychological and complex social phenomenon among individuals, and the trust mechanism is an important part of an organization's cultural capital. To an organization,trust culture is a striking characteristic of its corporate culture, and can decide the make or mar of the organization. The mutual trust among members within an organization can cut the cost to control internal frictions,and promote the solution of the "principal-agent"problem. A favorable trust mechanism can create a harmonious and optimistic corporate culture atmosphere, build business ethics of an organization, develop organization members, awareness of honesty, reduce the man-made deviation of system implementation because of lack of trust, and guarantee the smooth implementation of internal control. All in all, a well-functioning trust mechanism can better utilize the efficiency of internal control.Third,influence of corporate values on internal control. Theory on Cultural Reproduction is a representative idea of Pierre Bourdieu's Theory on Cultural Capital.Combining organization's development,the author thinks reproduction of cultural capital in an organization means conveying entrepreneurs' values to all organization members, thus forming a unified set of corporate values. The corporate values constitute the enduring and common faith of the organization, which can shape organization members' spirit and will and guide their behaviors. In this sense,"organization members"or the "man" are like a bridge,helping cultural capital to exert an influence on efficiency of internal control. A human-oriented corporate culture should emphasize on development of organization members and customer benefits. Such an corporate culture can win support from organization members and social recognition, and can efficiently boost efficiency of organization's internal control.This paper adopts the sample data of Chinese enterprises for statistical analysis and verification, and comes to the following conclusions. First, efficiency of internal control significantly improves along with strengthening of entrepreneurs' strategy-formulation ability, management ability and interpersonal ability. Positive values and missions can increase efficiency of internal control. Enhancement of entrepreneurs'opportunity-seeking ability can accelerate realization of organization's operation and strategic objectives. Trust culture, recognition of organization members, teamwork spirit and corporate cultural responsibility (CSR) can influence the limitedness of internal control. Second, furthermore, learning ability of entrepreneurs and organization's emphasis on "human orientation" do not have a significant influence on efficiency of internal control. Besides, how much CSR an organization undertakes is irrelevant to realization of its reported objectives and strategic objectives. Recognition of organization members and compliance objectives are positively correlated with each other. Moreover, trust culture and reported objectives are significantly correlated with each other. The shared teamwork spirit is irrelevant to compliance objectives and strategic objectives.Combining with theoretical analysis and empirical analysis of research conclusion,this paper suggests that organizations should re-examine efficiency of internal control from the perspective of cultural capital, improve entrepreneurs' ability construction mechanism, build a favorable trust mechanism, learn the connotation of"human orientation",build a "human-oriented" internal control mechanism, create a united organization cultural atmosphere, and attach greater importance to cultivation of corporate culture. All these are effectively measures to improve efficiency of internal control in organizations.