Evaluation And Empirical Study On Internal Control Of Listed Companies Of Shandong Province: Empirical Evidence Of The Year2010

With the rapid development of the listed companies in China, various potential risks are increasingly apparent. Many enterprises experienced huge loss of assets, financial fraud, business failure or even went bankruptcy. One of the reasons that can not be ignored for their failure is that their internal control has been invalid or they did not establish internal control ever before. In order to enhance the ability of risk prevention and tamp the foundation for internal management, it is necessary for enterprises to establish and implement a scientific and effective internal control system. The listed companies in Shandong province play an important role in domestic capital market. Therefore this paper takes the internal control system of Shandong’s listed companies as its research object. Based on the foreign and domestic internal control theories and empirical research results, and guided by the internal control framework established by"Basic Standard for Enterprise Internal Control", this paper constructs an internal control evaluation index system to evaluate and analyze the status of the internal control system of Shandong’s listed companies.Firstly we summarize the present situation of the construction and implementation of the internal control system of Shandong’s listed companies. The data sources in the listed companies’ public disclosure in capital market until April30,2011, including"2010Self-assessment Report of Internal Control","2010CPA Audit Report of Internal Control","2010Annual Report" and other relevant information. We find some problems, such as imperfect corporate governance structure, the lack of initiative in the construction of internal control system, weak implementation and supervision of internal control, and so on.Secondly we classify and quantify the public disclosed internal control information, and construct an internal control evaluation index system, which contains5first-grade indexes and25second-grade indexes with the five internal control elements as its framework. We calculate the Internal Control Index(ICI) to evaluate the level of internal control of Shandong’s listed companies and conclude that:the overall level of internal control of Shandong’s listed companies is moderate; the level of internal control of companies in Shenzhen Stock Exchange is higher than that in Shanghai Stock Exchange; the differences among different industries are not significant; it indicates that Shandong’s listed companies have achieved good results in the construction of internal control system in recent years.Thirdly we empirically study the influence factors on the internal control level of Shandong’s listed companies. We select independent variables from the aspects of corporate basic characteristics, external supervision characteristics and listed regional characteristics, and use methods of descriptive statistical analysis, correlation analysis, and stepwise regression analysis. The results show that:the number of listed years is a significant negative influence factor; the type of audit opinion on financial statement is a significant positive influence factor; company size, growth, authority of audit agency, ST/PT and listed sites are non-significant positive influence factors; overseas listed is a non-significant negative influence factor; yet ownership structure and profitability can not explain the dependent variable at all.Finally, we make some recommendations, including improving corporate governance, strengthening internal control consciousness, perfecting internal control links and strengthening internal control supervision.