Empirical Research On The Relationship Between Internal Controls, Information Disclosure And Investor Protection

The two important questions about investor protection are:(1) how to reduce the conflict of interests between controlling shareholders and minority shareholders;(2) how to suppress the opportunism behavior of management. Because of the separation of corporate ownership and management rights, there comes the principle-agent relationship between controlling shareholders and minority shareholders、investors and management. Internal management masters business decision-making power, which putting minority investors at an informational disadvantage, thereby triggering the phenomenon that controlling shareholders or management occupy minority shareholders’benefit (Li Zeng Quan.2004). And the occupation from within the company is more subtle, is not so noticeable and therefore not easy to control. So, to effectively protect the interests of investors, we should first work out two main issues:information problems and agency problems (Healy and PalePu,2001).After the SOX Act of United States, our supervision departments also put forward the corresponding requirement of the listed company’s internal control construction. As the basic measures to balance powers among insiders, to guard against errors and risk (Yang Xiong Sheng,2005), effective internal control can reasonably assure the real reliability of enterprise financial and management information. Meanwhile, sufficient information disclosure system makes sure that management will transfer the reliable information to investors timely and accurately, thus relieving the degree of asymmetric information and agency problems among market participants. In this respect, more studies are found in foreign countries. According to our special corporate governance mechanism and capital market institutional background, the applicability of these conclusions is worthy of further validation. Based on the above analysis, this paper should have certain theoretical significances and application values, to research the relationship of the listed company’s information disclosure quality, internal control effectiveness and investor protection.This study mainly consists of the following six parts:the first part is the introduction, which describes the background, meaning, ideas and methods; the second part is the review on relevant literature and some brief comments; the third part is the basis of theoretical analysis and research hypothesis, it elaborates the generation of double principal-agent relationships and its problems in the modern enterprise, and analysis fatherly the influence of information disclosure quality, internal control effectiveness on investors protection, starting from the perspective to mitigate agency problems, and then puts forward research hypotheses in this article; the fourth part is the research design, it mainly introduces the source of data for empirical research, variable definition method and the model; The fifth part is empirical test. On the basis of descriptive statistics, correlation analysis, we use multiple regression analysis method to study the relationship between Sample Company’s information disclosure quality, internal control effectiveness and the two types of agency costs, and then use Heckman’s two-stage treatment effect models to calculate the Inverse Mills ratio, for the correction of self-selection or the endogenous problem. According to the theoretical analysis and empirical research, the last part gives the conclusions of this paper and some policy recommendations.Therein, we choose the evaluation results of Shenzhen Stock Exchange as a proxy for the listed company’s information disclosure quality, and describe the internal control effectiveness from two perspectives, first, whether to disclose the internal control attestation report; the second is the completion degree of internal control operating efficiency and effectiveness goals. Then, we use occupancy rate of funds to measure benefits expropriation by controlling shareholder, expenses rate of administration to measure the agency costs of management. Through theoretical analysis and empirical test, we draw the following conclusions. (1)The high-quality information disclosure can effectively inhibit controlling shareholder’s occupancy of funds form listed company, and reduce agency costs between managers and investors.(2)From the angle of the goals’completion degree, there are both significantly negative correlations between internal control effectiveness and the two types of agency costs. While from the angle of the auditor’s verification report, the effective internal control can inhibit controlling shareholder’s occupancy of funds, but the negative correlation between the report and the management expense ratio is statistically not significant.(3)There are self-selection or endogenous problems between the listed company’s information disclosure quality, internal control effectiveness and two kinds of principal-agent cost. After controlling them with Heckman’s two-stage treatment effect models, the conclusions are more robust.