Study Of Internal Control And Inefficiency Investment Behavior Of Chines Listed Companies

In order to strengthen and standardize the internal control system in enterprise,five ministries the Treasure Department, the Securities Regulatory Commission, theAudit Office, the China Banking Regulatory Commission, the China InsuranceRegulatory Commission successively issued the " The Basic Profile Of EnterpriseInternal Control "in2008and "Enterprise Internal Control Guidelines" in2010, whichconstructed the regulations for enterprise internal control in our country. In2011,68companies which listed both domestic and overseas China and216pilot companiesbegan to enforce internal control system. In2012, the Treasure Department and SECjointly issued a notice that the enforcement scope of the internal control systemfurther expanded to777state-owned holding companies which listed on the mainboard. So, in2012, total853listed companies were been included in the scope ofenforcement, which marked that our country formally enter the Internal Controlsystem implementation stage by classification and by group.The capital allocation in enterprise brings inefficiency investment problem.Capital allocation, quite simply, means allocate the limited capital in order to achievethe goal——maximize the enterprise value, including financial activities andinvestment activities. With the development of capital market, the problem ofinefficiency investment is paid more and more attention to. For example the DelongGroup was one of the listed companies which got into financial trouble by inefficientinvestment, and in most general unlisted companies will also has the problem ofinefficient investment. Since one of the objectives of internal control system is toimprove the enterprise management efficiency, and the enterprise and the system musthave a common goal——maximize the enterprise value, so which role would theInternal Control system play in restrain the issue of inefficient investment inenterprise will be the key point of this study.First of all, this article analyzed the signal transmission theory, incompletecontract theory, principal-agent theory and the asymmetric information theory, thenshowed the mechanism of action how the Internal Control system affect the inefficientinvestment behavior. Analysis indicated the Internal Control system can restrain theinefficient investment behavior in enterprise, and, at the same time, it can also depressthe asymmetric information，improve management efficiency and promote thesupervision system. This article also analyze from the perspective of Internal Control Elements.In the empirical part, this article selects listed a-share listed companies inShanghai and Shenzhen stock exchange year2011and2012as research samples. Thisstudy first through the Richardson model improved that inefficient investmentbehavior in listed companies were exist in our country as a empirical evidence. Then,the sample is divided into over—investment group and under—investment group, ourregression also include the enterprise internal control level, finally， concluded that ahigher level of internal control can restrain the inefficient investment behavior.In the end, according to the research conclusion of this paper, the study putssome forward policy Suggestions. Enterprises should attach great importance toconstruct the control environment, strengthen risk identification, assessment andresponse ability, improve the execution of control activities, strengthen theinformation communication and improve the Internal Control system, then theenterprise can maximize the enterprise value by improving the internal control level tocurb inefficient investment behavior. At the end of the article，it explain the shortageof this article and the further study direction briefly.