The Empirical Research On Enterprises’Internal Control And Inefficiency Investment

Against the background of modern economy, the main content of corporate financial management consists of three themes,including financing management,profit distribution management,and investment management.Investment management helps enterprises increase future revenue and reduce risk by fund operations,achieving the maximization of both corpoorate value and shareholders’wealth,and thus becomes the core issue of corporate finance.At the same time,investment has made significant contribution to China’s rapid economic development and becomes one of the three major forces driving China’s economic growth.But in recent years, severe inefficiency investment behaviour among Chinese listed companies has appeared,including over-investment and under-investment,which negatively affect the efficiency of fund utilization of Chinese listed company and the healthy development of capital market.Therefore,researching enterprises’inefficiency investment behaviour to put forward practical governance measures and effectively instructing Chinese listed company to make reasonable investment decisions become an urgent task.After a series of financial scandals in listed companies,such as Enron and WorldCom,dealt a hard blow to investor confidence,in2002the United States enacted the Sarbanes-Oxley Act, which greatly drew people’s attention to the importance of internal control both in practioners and theorists home and abroad.And internal control becomes a leading issue of corporate management all over the world.Under the current background,studying the efficiency of a firm’s investment from the perspective of internal control would be a desirable and worthy exploration.However,our literature review shows that hardly any literature offers the evidence of the correlations between internal control and inefficiency investment behaviour.So this pqper attempts to find out how internal control suppresses enterprises’inefficiency investment. The theoretical analysis of this paper is based on the principal-agent theory and asymmetric information theory.After reviewing and summarising previous study on internal control’s economic results and the affecting elements of enterprises’ inefficiency investmentwe can come to a conclusion that enterprises’ inefficiency investment is mainly caused by information asymmetry and agency problem.And internal control can lead to an improvement of firm investment efficiency by two paths.First,high-quality internal control existed with a perfect supervising and motivating system can perfect contracts,optimize the control power configuration and lower the likelihood of getting into troubles when a firm making an investment desion which is generated by the agency problem.Secondly.raising the level of internal control brings better quality of financial reports and enhances information transparency,so that information asymmetry between managers and external capital providers would be reduced and enterprises are able to get rid of the constraints of raising capital.Specifically,this paper analyze ways in which five core elements of internal control helps to suppress the inefficiency investment behaviour of enterprises runing through the whole process of firm management.In the part of empirical analysis,this paper refers to the COSO framework and China’s specific circumstance and brings forward internal control evaluation exponent system to measure internal control elements and its comprehensive level.Then we use Richardson’s expected investment model to measure distortions of sample firms’ investment behaviour.Last,we design multiple regression models to analyze the relationship between internal control elements, internal control comprehensive level and inefficiency investment respectively.The results shows that,on the whole,raising the level of enterprises’internal control is an effective way to improve investment efficiency.Finally,according to the conclusion of the theoretical analysis and empirical results,this paper propose the following suggestions to Chinese listed company:(1) improve the control environment;(2)strengthen risk awareness;(3)implement control activities;(4)pay attention to information and communication system;(5)strenthen internal and external regulatory.The purpose of these proposals is to speed up Chinese listed company’s construction of internal control system and guide enterprises in scientific and efficient investment decision-making and management.