Research On The Financial Effect Of Strategic Change From The Perspective Of Internal Control

In the 'New Normal' period,China's economic development mode must shift from scale-speed mode to quality-efficiency mode.The adjustment of economic structure must shift from increasing number expansion to adjusting inventory and making incremental improvements.Under the background of this era,our country proposes a national strategy of supply-side structural reform.Unlike the demand-side management with the stimulus policy as the core,the focus of supply-side reform is the corporate strategy change.Supply-side reforms urgently require companies to adjust their strategic positioning and strategic resource allocation plans.In order to achieve the goal of strategic change,they need to obtain financing from outside sources to support the development of corporate strategies.On the other hand,they must also consider how to ensure that funds are used effectively and correctly.The investment project,which is the issue of debt financing and investment efficiency to be considered in the strategic change of the company.However,the ultimate goal of corporate strategic change is to enhance corporate performance and enhance corporate competitiveness.Therefore,it is necessary to study the financial effect of strategic change from three aspects:debt financing,investment efficiency and corporate performance.Through combing the literature,it is found that the results of research in the field of strategic management are mostly seen in the formulation of strategies,and lack of the combination of strategic theory and financial theory(Wang Huacheng et al.,2016)to explain the implementation of strategic changes and the economic consequences of strategic changes.Therefore,the financial effects of strategic changes have a lot of research space.The impact of strategic change on the financial effects of debt financing,investment efficiency,and corporate performance has enormous complexity and uncertainty.The reason is that the strategic change brings benefits and huge costs and risks(Zuniga and Vicente,2006;Xie Kang et al.,2016).The realization of the goal of strategic change is based on the premise of strategic execution and strategic control(Xu Wanli et al.,2008),otherwise it will lead to the strategic development and implementation of the strategy out of touch,causing the strategy to lose control(Feng Hailong,2010;Wang Yu,1997).The essence of internal control is strategy formulation and implementation control,which is an important mechanism to ensure that companies implement strategic plans and achieve organizational goals(Chi Guohua,2009).China's"Basic Norm of Corporate Internal Control" regards "promoting enterprises to achieve development strategy" as the most fundamental and most important goal in the internal control target system(Li Weian and Dai Wentao,2013).However,existing studies mostly explore the role of internal control from the perspective of accounting audit,and ignore the perspective of management control.Study the impact of internal control on the implementation of corporate strategy(Yang Xiongsheng,2005).Although existing research has proposed the importance of establishing a strategically oriented internal control system(Li Xinhe,2007),it still lacks theoretical and empirical research on internal control and corporate strategy.What role does internal control play in the implementation of strategic changes?What are the implications of the financial effects of strategic changes?These issues remain unclear.Based on the above background,this paper combines the resource-based theory and resource dependence theory,strategic adaptation theory and organizational ecology theory,strategic execution theory and organizational learning theory in strategic management field,and the five-element theory of internal control,agency theory and information asymmetric theory in the financial field,studies the financial effects of strategic changes in debt financing,investment efficiency,and corporate performance from the perspective of internal control.The core issues of this paper are divided into two levels:First,to study the financial effects of strategic changes,the purpose is to find the difficulties,risks,and challenges in the implementation of corporate strategic changes,that is,the process of "discovering problems";secondly,internal Based on the control system,we will study how internal control can enhance strategic execution capabilities,control the key risks of change,improve and optimize the effects of financing,investment,and performance in strategic changes,and promote the realization of corporate strategic goals,the process of "solving problems." This article first sets up a theoretical analysis framework for strategic transformation,internal control of corporate debt financing effects,investment effects and performance effects,and elaborates the mechanism of the impact of strategic changes on corporate debt financing costs,over-investment,and corporate performance.In-depth analysis of the internal control of the strategic effects of the financial effect of the regulatory mechanism.Further,this article uses the financial and governance data of China's A-share listed companies from 2007 to 2016.Through empirical research,the theoretical analysis of this paper is verified in the following three aspects:First,study the relationship between the strategic change and the cost of debt financing,and the role of internal control quality in moderating the relationship between strategic change and the cost of debt financing.The study finds that:First,the greater the degree of corporate strategic change,the higher the risk of business uncertainty and the risk of information asymmetry between companies and creditors,so there is a significant positive correlation between the degree of strategic change and debt financing costs;Second,the quality of internal control has a significant regulatory effect on the relationship between the two.High-quality internal controls can inhibit the risk of business risks and information asymmetries brought about by corporate strategic changes,ease corporate debt financing constraints,and reduce the debt financing costs of strategic change companies;Third,the relationship between strategic changes,internal controls and debt financing costs will be affected by the nature of the industry,the nature of property rights,and the degree of regional financial development.In comparison,the positive correlation between the degree of strategic change and debt financing costs is more obvious in non-high-tech industries,low-competitive industries,non-state-owned enterprises,and regions with lower levels of financial development,and the role of internal control in reducing the cost of debt financing is even greater prominent.Second,study the relationship between the degree of strategic change and over-investment,and the role of internal control quality in moderating the relationship between strategic change and over-investment relations.The study found that:First,the greater the degree of corporate strategic change,the stronger the motivation and ability of management to build a managerial empire by over-investment,the more difficult the supervision of executive opportunism behavior,and the lower the cost of punishment for executive opportunism,so there is a significant positive correlation between the degree of strategic change and over-investment;Second,the quality of internal control can significantly moderate the degree of strategic change and over-investment in companies.High-quality internal controls can be implemented from the perspective of governance structure,decision-making mechanism,and implementation control level and information communication and regulatory level effectively control the strategic change of the non-efficiency investment behavior of the company's management,reduce the degree of over-investment of strategic change companies;Third,the relationship between strategic change,internal control and over-investment will be affected by management power and property rights.In contrast,the positive correlation between the degree of strategic change and over-investment in the higher management power companies and state-owned companies is more prominent.The internal control mechanism can play a role in governance for higher management power companies,reducing over-investment,but the inhibitory effect on over-investment of state-owned enterprises is not significant for non-state-owned enterprises.Third,study the relationship between strategic change and corporate performance,and the role of internal control quality in moderating the relationship between strategic change and corporate performance.The study finds that:On the one hand,strategic changes both have adaptive and destructive effects on corporate performance.The degree of strategic change and corporate performance are inverse U-shaped.Proper strategic changes have a positive effect on corporate performance,and excessively high levels of strategic change may bring loss of performance.On the other hand,internal control can enhance the adaptive effect of strategic change,and significantly reduce the destructive effect.Therefore,it has a significant regulatory effect on the inverse U-shaped relationship between strategic change and corporate performance,mainly reflected in three aspects:first,high-quality internal Control makes the shape of the relationship between the two more smooth,reducing the volatility of the performance after the strategic change;Second,high-quality internal control makes the inflection point of the relationship between the two right shift,companies can manage a greater degree of strategic change;Third,high-quality internal control can enhance the overall level of corporate performance after strategic change.The innovative and academic contributions of this article are mainly reflected in the following three aspects:First,this paper integrates the theory of strategic execution management into the research of internal control,establishes a theoretical analysis framework for internal control to enhance strategic execution capabilities and control the key risks of change during the implementation of strategic changes,and provides internal control "to promote enterprises to achieve development strategies".The realization of this strategic level goal provides theoretical and empirical evidence for supporting debt financing,optimizing investment efficiency and improving corporate performance.Previous studies have mostly discussed the role of internal controls in safeguarding corporate financial reporting and related information quality,legal compliance,and asset security from the perspective of internal control of suppressing agent conflicts and reducing information asymmetry.However,the most important and fundamental part of the internal control target system is the goal to achieve strategic goals,how internal control can improve the efficiency and effectiveness of business operations,and promote enterprises to achieve development strategies.This issue is less involved in existing research.Whether the establishment of financial-oriented internal control or strategic-oriented internal control remains controversial.This article summarizes the theoretical aspects of internal control to promote the realization of strategic objectives and improve the financial effects of strategic changes to play two major roles:to enhance the implementation of the three capabilities and to control the six key risks of change.At the same time,an empirical test of the regulatory mechanisms of the internal control of the three levels of debt financing costs,investment efficiency,and corporate performance for strategic change provides empirical evidence for the theoretical analysis of this paper.This article enriches the research on the internal control objectives from a strategic perspective and also provides new ideas for the internal control of enterprises.Second,this paper combines strategic management theory with financial theory,and analyzes the financial effects of strategic changes from three aspects:debt financing costs,investment efficiency,and corporate performance,and provides a new theoretical perspective and empirical evidence for the study of the economic consequences of strategic changes.The research results on strategic change in the field of strategic management are more focused on how to formulate effective competition strategies and the influencing factors of strategic changes,simplifying and ignoring the execution and landing of strategies,and lack of analysis of the economic consequences of strategic changes(Xue Yunkui et al.,2005).In recent years,scholars have begun to pay attention to the combination of corporate strategy and finance(Ye Kangtao et al.,2014,2015;Wang Huacheng et al.,2016,2017;Li Zhigang and Shi Xianwang,2016),but these studies focus on the strategic differences From the point of view of strategic types,relevant literature on strategic changes and debt financing and investment decision-making has not been found in existing studies;at the same time,there are also major differences and disputes concerning strategic change and corporate performance(Zuniga and Vicente,2006;Cui et al.,2011).This paper studies the economic consequences of strategic changes from the perspectives of debt financing costs,over-investment,and corporate performance,and provides a useful complement to the study of the economic consequences of strategic changes.Third,at the statistical method level,this article deepens the understanding the mechanism of the inverted U-shaped model and the moderation inverted U-shaped models,and proposes a three-step test method for moderation inverted U-shaped models and extends the analysis perspective of moderation.Studies in the financial and management fields increasingly use curve models instead of simple linear models to explain complex problems,especially for moderation U-curve regression models,and there is still a lack of understanding of moderation mechanisms and interpretation of statistical results(Haans et al.,2016).In this paper,an inverted U-shaped relationship is taken as an example.Firstly,an inverted U-shaped relationship model is established to analyze its test methods,characteristics and formation mechanisms.Further,an inverted U-shaped relationship model with regulatory effects is established to analyze the effect of adjustment variables on the curve formation mechanism.This paper presents three analysis methods of the model's three-step test method and moderate effect.This article draws on the analytical paradigms of Lind and Mehlum(2010)and Haans et al.(2016),but on this basis makes four improvements to the methodology:First,the latent functions behind the inverted U-shaped relationship is explained in detail through mathematical derivation,deepening the understanding of the formation mechanism of inverted U-shaped relations;Second,introducing the concept of curvature into the analysis of inverse U-shaped curves,interpreting the inverted U-shaped curve more rigorously,and simplifying the derivation of the influence of moderate variables on the curve shape.Process;Third,a three-step test method for the moderation inverted U-shaped is proposed;Fourthly,the effect of the moderate variable on the inverted U-shaped curve is expanded from the two perspectives of shape and inflection point to three perspectives of shape(vertex curvature),inflection point(symmetry axis)and level.