Empirical Study On The Relationship Between The Quality Of Internal Control And Cost Of Equity Capital

With the continuous development of modern economy, enterprises are facing morecomplex external environment. So how to grow and develop in a rapidly changingmarket competition is a problem that all modern enterprises must face. Whether it isfrom the experience of our country or abroad, the effective internal control system is anintegral part of the corporate responding to the changing external environment.Based on this, the internal control has gradually become the focus of research doneby scholars at home and abroad. In recent years, China’s relevant departments havecontinued to introduce relevant laws and regulations on internal control, which hasproposed requirements for the implementation of internal control. But in view of somuch investment needed, now it seems the majority of our enterprises to establish andperfect the internal control are subject to the policy, lacking the internal controlconstruction initiative. To this end, this paper attempts to explore the relationshipbetween the quality of internal control and cost of equity capital of listed companies inChina, reflect the internal control of listed companies in China to promote thecontinuous development and improvement，and providing new ideas for cost of equitycapital theory.Firstly, Review and evaluate the research on internal control and the cost of equitycapital at home and abroad, from which to get the new vision of internal control.Draw the scholar evaluation of internal control, calculation of the cost of equity capitaland its influencing factors in the past research, apply the method to internal controlaffecting the cost of equity capital and analyze this theory deeply. On the basis oftheoretical conclusions，quantify indicators and build a model to validate the conclusionusing the data of listed companies. The conclusion is that internal control is good orbad to have an important impact on the level of the cost of equity capital. And then putforward practical recommendations on the main problems of the internal control oflisted companies in China. This study mainly gets following conclusions: First, goodinternal control has begun to play an active role in reducing the cost of equity capital.Second, the effect of internal controls reducing the cost of equity capital is to be furtherimproved. Third, supporting systems of internal control aren’t not perfect, which is to some extent restrict the internal control giving full play to reduce the role of the cost ofequity capital. In this paper, the normative analysis and empirical analysis, qualitativeand quantitative analysis are combined to make it more representative and convincing.