The Study On The Influencing Factors For Internal Control Information Disclosure Of Real Estate Industry

Since a series of financial fraud scandals emerged in the first few years of 21 century, the disclosure of internal control information has become a main issue discussed by scholars and practitioners. The internal control information disclosed by listed companies, can not only enhance their external supervision from investors, debt-holders and regulators, but also raise the companies’self-awareness about their own internal control system. In western developed countries, the researches on the internal control information disclosure are comparatively mature and form a set of relatively complete theoretical achievements. Initiating the researches on disclosure of internal control information in 90’s of last century, the academia of our country is a late starter in this topic, but the internal control theories developed by our scholars are approaching the mainstream mature theories. The government is also paying more attention to internal control. The Sarbanes-Oxley Act passed in 2002 marked the disclosure of internal control information became legally compulsive in United States. In June and September of 2006, our country enacted Shanghai and Shenzhen Stock Exchange Guidelines on Internal Control, manifesting that the compulsive disclosure of internal control information also became mainstream in our country.Real estate industry is one of the basic industries the society relies on; it also plays a crucial role in the construction and development of a city. After the Reform and Opening-up, our real estate industry firstly experienced a stable growth and entered a super boom phase in recent ten years. Due to its considerable weight in our domestic economy, whether it could stably develop has become a key issue relating to our domestic economy and the immediate interests of our people. The outbreak of the Subprime Crisis once negatively affected the real estate industry in our country, but a series of housing consumption stimulating policies promulgated by government promptly reversed the downward trend. However, as the whole real estate industry entered into a over-investment phase, the housing vacancy rate kept on climbing up and the housing price arrived at an unaffordable level. The government announced several polices of macro-control. Tighten up of policy and financing environment and the rise of quality requirements and various costs are rapidly increasing the risk faced by the real estate companies. The real estate corporations establish a sound internal control system and effectively use it, disclosing high-quality internal control information to the public.The author discovers that the researches on the internal control information disclosure of Chinese listed companies are currently mainly normative ones, and the empirical studies on the influencing factors for disclosure of internal control information are fewer. Few of the scholars have conducted the researches of this topic within a certain industry. Especially, there is no empirical study on it. It is therefore quite meaningful to look into the influencing factors for the internal control information disclosure of listed real estate companies. In addition, the lack of substantive measurement for the level of internal control information disclosure also enhances the necessity of this research. Generally, this thesis introduces the relevant articles and theories, tries to design 8 measurement indexs for the level of internal control information disclosure, displays the current situation of the listed real estate companies in our country, then empirically analyzes the influence of a company’s basic features, internal governance structure and external governance mechanisms on the disclosure intensity of its internal control information. In the end, this essay raises several suggestions, which are based on the research results, to improve the internal control information disclosure in our country. This thesis is divided into six chapters. A more detailed introduction is followed:Chapter 1:Introduction. This chapter illustrates the research background of this thesis, introducing the issue about the internal control information disclosure in real estate industry. Through the discussion of research background, the thesis manifests the theoretical and practical significance of this research topic. Next, with reference to practical problems, this chapter gives the research framework, methods and innovation. Finally, the author reviews and summarizes existing researching findings of the disclosure of internal control information, then briefly comments those findings, establishing the starting point of this thesis.Chapter 2:Theory basis. Beginning with relevant regulations, this chapter explains the concepts of internal control and internal control information. Adopting the definition of internal control given by Basic Standard for Enterprise Internal Control, this thesis defines the internal control information disclosure as:the managements of listed companies use certain standard to evaluate the completeness, reasonableness and validity of the design and implementation of the internal control of their companies, and provide the external information users the results in the form of public report. Next, this chapter explains three relevant mainstream theories, and their influence on the internal control information disclosure. This thesis holds the opinion that the internal control information disclosure can mitigate the conflicts between the principals and agent, reduce the information asymmetry and play a signaling role for high-quality listed companies to convey positive information about the future of those companies.Chapter 3:Measurement of internal control information disclosure and current situation analysis. This chapter first set the measurement indexs for internal control information disclosure according to relevant regulations. Selecting A-share listed real estate companies during 2007 to 2009, this chapter deals with statistics in the three years and there are 300 samples in all. By accessing, one by one, the measurement index, companies’annual report, this chapter finds an annual enhance of the companies’self-assessment reports, an apparent difference among different companies, and a better report by Shenzhen Stock Exchange than that of Shanghai. Next, this chapter descriptively analyzes the current situation of the sample companies’internal control information disclosure from the disclosure form, location, measurement basis and internal control deficiencies. It also finds some unideal situation in self-assessment report and audit report.Chapter 4:Research hypothesis and design. On the basis of literature review, the author first raises eleven research hypotheses from companies’basic features, internal governance structure, and external governance systems. Those eleven hypotheses are:the internal control information disclosure level is positively related with company size, profitability, financial leverage, etc, also negatively related with ownership concentration and concurrent of chairman and general manager. Then the author states a specification for the selection of samples and the source of the data, taking the assessment of disclosure of internal control information as the explained variable, assessment index for the listed real-estate companies as explaining variable, and company scale as control variables. Finally, the author constructs a multiplied linear regression module.Chapter 5:Empirical tests and findings analysis. This chapter first analyzes all the variables. Then it carries out a correlation tests between them. Finally, it applies Eviews5.0 to carry out a multiplied regression analysis (respectively from section data and time series data) and panel data analysis (combination of section data and duration data) of the explained variable and control variable. Then the author uses regression results to examine the hypothesis and advance to a hypothesis analysis. From this chapter we can see:the influence of profitability and proportion of independent directors is same with hypothesis but not significant. The author thinks that there are many indexs to demonstrate companies’ profitability. There might be some partial difference by choosing the net profit margin of the total assets as the profitability index. Some board of directors of listed companies might have no practical function.Chapter 6:Research findings and correlated suggestions. This chapter begins with a summarization. Combining with domestic capital market’s features, this chapter raises some suggestions for the improvement of such areas as improving the supervision of the disclosure of internal management control, increasing the initiative of voluntary disclosure, etc. Finally, it deals with some limits of this research and makes an outlook for future research field.The innovation of this research is demonstrated in three aspects:1. Research area:Research dealing with internal control information is aimed to all corporations not a certain industry. However, this thesis aims to the research of listed real-estate companies.2. Measurement index:Measurement used to center in whether or not the annual report consist internal control information or self-assessment report. This thesis constructs 8 measurement indexs for internal control information disclosure and designs a rating scale for the standardization of it.3. Research approach:There used to be lots of demonstration of internal control information disclosure with large amount of cross-section data. This thesis carries on the research by combining cross-section data and time series data, meanwhile introducing the panel data approach, thus get more accurate results.