Empirical Study Of The Impact Of The Board Of Directors Of Listed Companies On Internal Contorl

With the establishment of modern enterprise system, the globalization of economy and the internationalization of capital, China has enjoyed rapid economic development. But at the same time, more enterprises are found involved in financial fraud, for example, the financial fraud of Yunnan Green-Land in2011. To some degree, corporate financial fraud is the result of companies’internal control failure, which is inconsistent with the objectives of internal control. Therefore, we have to pay more attention on the effectiveness of internal control. On July1,2008, our regulators issued the "Basic Norms of Internal Control", requiring listed companies to evaluate the effectiveness of their internal control, disclose the annual report and issue internal control audit reports. Besides, researchers have studied the factors affecting the effectiveness of company’s internal control, including corporate governance, firm size, corporate culture, corporate development stage and management’s integrity and moral values. However the board of directors, as an important factor affecting the effectiveness of internal control, doesn’t gain enough attention. Existing studies have not draw a firm or unified conclusion regarding on the relationship between the characteristics of the board of directors and the effectiveness of internal control. The research in the factors affecting internal control will help the enterprises improve its management, he reliability of financial and management information and business performance, thus protecting the legitimate interests of investors.First, the paper reviews the existing literatures regarding on the effectiveness of internal control within and outside China, and then the definition of internal control and he Board of Directors and related basic theory. Based on the theoretical analysis, the paper proposes research hypotheses and makes an empirical study on the influence of the board of directors of listed companies on the effectiveness of its internal controls. Then this paper puts forward some advices to improve the effectiveness of internal control based on the theoretical analysis and empirical results from the standpoint of corporate governance. Finally, this paper makes the conclusion, points out limitations of this study and proposes research prospects. With the sample of all the listed companies from2010to2011, the paper tests the influence of the proportion the independent directors, the position setting of the chairman of the board of the directors and general managers, the frequency of board meeting, whether the address of independent directors is consistent with the company address and the proportion the share held by the board of directors on the effectiveness of internal controls. This paper concludes that some of the characteristics of the board of directors can have effect on the effectiveness of internal control. The finding of this paper can enrich the research about the factors affecting the effectiveness of internal control and provide with theoretical reference for companies to improve the internal control effectiveness, optimize internal management, and establish a modern management system.