An Empirical Analysis Of The Effect Of Corporate Internal Control On Earning Management

BackgroundIn recent years, the good effect of internal control which is to enhance corporate governance and optimize market structure has obtained more and more academic and practical recognition. The Ministry of finance, Securities Regulatory Commission and other ministries launched densely a series of laws and regulations about standardizing internal control system, strengthening enterprise internal control. After the policy has been turned out, the market reflect actively. All listed companies disclosure internal control information in succession under the regulations. Many researchers conducted in-depth research, these studies mainly focus on the efficiency of policy implementation effect and put forward suggestions for optimization. But the research method and research content about internal control are slightly frail and repeated research seriously. Therefore, the author hopes to make a breakthrough in this field.There are so many ratio to show the performance of the company’s internal control environment and the management thought, but the most familiar and relatively accurate data is earning data, so this paper use earning management to measure the company’s management culture. The present study used mostly whether the internal control self-evaluation report released to measure internal control quality, the author thinks this is rough, so on the basis of some scholars studying to design a more comprehensive indicator system.PurposeOne purpose of this research is through the analysis on internal consistency between internal control and earnings quality, tap the internal control effect to earnings quality on the degree and direction. To provide theory and data support to establish a mechanism which is through strengthening internal control so as to make a health management environment, fair earning data. At the same time, hoping that this research can help governmental to supervise internal control disclosure. The other purpose is to reveal construction differences of the internal control of listed companies, so as to provide follow-up study method and train of thought.Main content and viewChapter one is the introduction, that mainly introduces the background and significance of the topic, and summarizes the structure to make a brief introduction.Chapter two is the literature review, that analyzes the theory origin of internal control and earnings management, summaries and evaluates the current research about internal control at home and abroad.Chapter three is the theoretical foundation, that focuses on the internal consistency between internal control and earnings quality of. Based on the principal-agent theory, information asymmetry theory and the cost-benefit theory, analysis in-depth on how internal control affecting the earnings quality. At the same time, how various elements of internal control influencing earnings quality.Chapter four is the empirical analysis. In this paper the research sample are372companies that are Shenzhen A shares listed on the main board.The measurement of earnings quality, select the cash flow of the modified Jones model, has a relatively high accuracy of earnings quality. In the measurement of internal control, set up the internal control evaluation index according to internal control five elements based on the content analysis method. On the basis of the internal control and earnings quality correlation coefficient analysis and regression analysis, the empirical results, verify the research hypothesis.Chapter five analyses the research results and put forward suggestions. This chapter offer proposal according to the empirical results in the government supervision, corporate governance and system construction.The main contribution and limitationThe main contribution of this paper lies in the following aspects:First of all, this paper applies many empirical analysis methods to reveal the influence of internal control on earnings quality, hope that in the theoretical and empirical aspects are able to analysis of the relationship in-depth between the two, which makes the research perspective is more comprehensive and convincing.Secondly, this article in the measurement of earnings quality is not only apply the commonly used Jones model, but using the model through cash flow correction, and through the fitting degree of inspection, proved suitable for our market situation. In the measurement of the internal control, the establishment of internal control evaluation index by collecting large amounts of data, ensure the accuracy and objectivity of the index. The two basic data acquisition process in the domestic research is relatively rare, and this process is also enhanced by the empirical results of accuracy and reliability.Because of the energy and the research level is limited, this article also put in a few inadequacy and areas in need of improvement. Sample only selected Shenzhen advocate board company one year data, may cannot represent the whole situation. At the same time, the data is manual collected so the emergence of mistakes is in place, these are needed in further improving and deepening in future research.