Empirical Study On The Relevance Between Agency Costs And Internal Control Audit

With the development of modern enterprise, management right has been separatedfrom proprietorship gradually, and in this course principal-agent relationship has beenestablished. However, due to the immaturity of the contract, the management may infringethe interest of all stakeholders in order to seek its own maximal benefit under theassumption of the idea of “rational economic man”. Both the domestic and foreign researchshows that agency costs are directly show the agent conflict severity, so a reasonablesolution to the problem of agency costs will help reduce the possibility of management’sopportunistic behaviors and the implement of internal audit will urge the company to paymore attention to the disclosure of internal control information, in this way, the internalcontrol system could be completed and then the supplementary contract will be formed. Asa series of internal control system, such as the Standard for Enterprise Internal Controlhave been issued, the disclosure of internal control information changed from voluntary tocompulsory in China. But the internal audit system is still far from perfect because of ashort-term development. Therefore, the study of the relationship between agency costs andinternal control audit can not only make the enterprise think highly of the value of internalcontrol audit and improve the disclosure quality of internal control information, but alsoencourage the management to improve the internal control system. Consequently, it willplay a positive role in alleviating the inherent contradiction among the stakeholders, andprovide theoretical support to the perfection of internal control audit system as well.This paper first reviews the literatures of agency costs and internal control audit bothat home and abroad and makes comments on them. Part one: the agency costs aresegmented into stock right and debt right from the aspect of financing. Part two: literaturereview respectively on audit of financial statement, audit fee, the correlation betweenagency costs and internal control audit, through analysis of the results of previous studies,we found that, the level of agency costs directly affect the selection of business to theinternal control audit, and agency costs can be distinguished from both equity and debt.Secondly, this article based on the principal-agent theory, contract theory andsignaling theory, we believe that agency costs directly affect the attitude of enterprise toaudit of internal control. Picking up the data from A-share listed firms in Shenzhen mainboard market as the sample, further verifying the correlation between agent cost andinternal control audit in an empirical way, explaining that the adoption of internal control audit in the listed company can be attributed to its own demands. Several main empiricalconclusions have been drawn:(1) the higher the administration expense is the morereluctant that the listed companies conduct internal audit;(2) the larger the management’sstock holding quantity is, the more reluctant that the listed companies accept internal audit;(3) the higher the shareholding ratios of the large shareholders are, the more reluctant thatthey conduct internal control audit, but its influence is limited;(4) the higher theasset-liability ratios are the more reluctant that the listed companies carry out internalcontrol audit. Thus, there is a significant correlation between agency costs and internalcontrol audits.Finally, based on the theoretical evidence and research findings mentioned above, inthis paper, to increase monitoring of government control to the information disclosure ofinternal; enhance the quality of internal audit in accounting firm; improve the internalcontrol audit of the three proposals for autonomy, and point out the limitations of the studyand research of the next goals.