The Research Of Internal Control Quality’s Influence On Bond Contract Clause

The internal control information’s disclosure is helpful for reducing the asymmetric information between exterior investors and company’s management, also, to reduce the proxy cost caused by asymmetric information. Enterprise debt financing makes the company’s management reduce adverse selection and moral hazard by introducing the creditors. It is useful to deal with principal-agent problem under the situation of separation of powers. From the sight of reducing proxy cost, the internal control information’s disclosure is related to the enterprise debt financing. After the investment, the information asymmetry between the creditors and the bond issuer is improved through the regular and irregular internal control reports. Empirical studies have shown that if China’s listed company is in period of fixing the internal deficiencies, the number of its debt would be affected at the certain degree, however, this effect not clear due to various reasons of China’s bond market.The course of the study also shows that corporate management or the owner of the residual income always combine positively the various terms of the bond to constrain the behavior of creditor after the financing. This situation further validates that the weakness of internal control or the disclosure of defect information will affects creditors’ trust in the financial reports of listed companies, this will cause the investor makes the portfolio decisions not based on the financial information. Through the study of internal control information’s influence on the terms of the debt, we can find that the quality of internal controls will have some economic consequences. In order to reduce the asymmetric information between creditors and debtors, the government should not only constantly add guarantees of the market system, but also establish effective information system to standardize and improve the corporate disclosure system. At the same time, the supervision of debt covenants of signing and implementation should be strengthened.