Research On The Supervision Of Independent Directors And The Quality Of Internal Control

Recent years, a series of major financial reporting fraud cases which came up in companies such as Enron, Global Crossing, Worldcom has shaken the confidence of investors and also brought investors huge losses in capital market. What causes this phenomenon? Are companies’ internal control system incompetence or corporate governance that can not play a role in the internal control? In order to answer these questions, the study is increasingly focused on the internal control and corporate governance issues, many studies discussed the factors that influenced internal control quality from the perspective of corporate governance. Independent directors, regarded as a very important factor in corporate governance, are often considered to be effective and objective supervision of forces existing in the listed companies, and their responsibility for internal quality also can be reflected in the regulations. As such, on the basis of existing studies of internal control quality, the paper, choosing the view of the independent directors’supervisory role, empirically examines the effect of independent director oversight power in the internal control quality improvement.The article first reviewed and combed the related literature and found that research on the relationship between the independent directors and the quality of internal controls were less both in home and abroad, besides, the existing research only investigated the supervisory role of independent directors from the proportion of it. Therefore, in-depth analysis of the role of independent director oversight force in improving the quality of internal controls is very meaningful. Then theoretically analyzed the relaitonship of independent director oversight power and internal controls quality improvement, built four supervisory force level of independent directors (supervisory capacity, supervisory impetus, supervisory balances power and supervisory execution), and accordingly put forward the assumptions of the article. Again, selecting the Shenzhen Stock Exchange A-share market of2006-2010data sample, and through the descriptive statistical analysis, correlation and regression analysis, this paper examines the role of independent director oversight in improving the quality of internal control, and found that the stronger of the supervisory power, the higher quality of internal controls, namely the director oversight power play a role in improving internal control quality. Finally, according to the empirical results, the paper put forward some recommendations of the independent director system in China, and hope these will help independent directors better play the supervisory role and improve the quality of its internal control...