The Influence Of Corporate Governance Structure On The Effectiveness Of Internal Control

The development of economy and the change of market environment make the risk that the enterprise facing more seriously. The basic management tools and methods of the modern company-internal control, is an important means to improve the risk management level.In recent years, the occurrence of the financial scandals and bankruptcy home and abroad shows that there are many problems about internal control, These make the country all over the world introspect the problem about the internal control.For a long time, the Chinese government has been committed to promoting the enterprises to set up a sound internal control system, in2008, the Ministry of Finance, the Ministry of Audit, the China Securities Supervision Committee, the China Banking Supervision Committee and the China Insurance Supervision Commission issued the "enterprise internal control basic norms", which provides a theoretical basis to establish and assess the internal control for the Chinese enterprises. In2010, the five ministries published "the Practice Note of internal control","the Evaluation Note of internal control" and "the Audit Note of internal control ", which provides specific guidance to construct the internal control and evaluate the internal control effectiveness. This also means China has formed "1+3" internal control system. In order to make the enterprises build the internal control system successfully, the CSRC had expanded the daily regulation of listed companies to the construction of internal control. So far, although there is no compulsive requirement for the companies listed on GEM to make self-assessment and disclose the internal control self-assessment report, fully implement the internal control guidelines in the company listed on GEM is inevitable. Therefore, the writer carries out the study based on the internal control notes which issued in2010and the time-table formulated by the five ministries.In order to make the article more structured, the author organizes the article in theoretical and empirical perspective respectively.In the theoretical analysis part, the author clears the concept and the connotation of the corporate governance and the internal control, and then defines the effectiveness of internal control. The COSO report and most researchers define the "internal control effectiveness" based on the internal control goals, but the notes of Chinese internal control measures the effectiveness of internal control based on the design and execution of internal control. Through studying the evaluation note of internal control and the audit note, and combines the specific situation of the companies listed on Chinese gem,, the author points out that the internal control effectiveness refers to the level of assurance that the internal control provides for the goal. Secondly, in order to make the empirical research more theoretically, on one hand, the author uses the contract theory and principal-agent theory as the theory source, and connects the signal theory, incentive theory to analyze the internal relationship between corporate governance and internal control. On the other hand, the author separately analyzes the effects of corporate governance structure on internal control from the dimensions of the governance structure, which strengthens the theoretical basis.In the part of empirical research, the author proposes the hypotheses based on the theoretical analysis and the specific circumstances of companies listed on GEM. In terms of the measurement of the internal control effectiveness, this paper selects the indicators based on the internal control objectives, get the scores of internal control effectiveness through principal component analysis, and consider the scores as the article explained variable. The author choose the characters of ownership structure, board of directors and board of supervisors, other features that represent the corporate governance structure as explained variable. Select355companies listed on GEM as sample, use statistics analysis to explore the influence of the corporate governance structure on internal control effectiveness. The results show that:in case of other conditions remain unchanged, there is no significant negative correlation between the times of board Meeting, the chairman of the board hold a concurrent post general manager, the total salary of senior management and the internal control effectiveness.In the case of other conditions remain unchanged, equity balance degree, annual general meeting of shareholders shares attendance, the establishment of audit committee, with tertiary and higher education employees accounted for all employees proportions has was significantly positive correlation with internal control effectiveness. In the case of other conditions remain unchanged, the proportion of the largest shareholder, the actual size of Board, the ratio of the independent director, the proportion of the Senior Managements that has been Condemned while still being has significant negative relationship with internal control effectiveness.In the case of other conditions remains unchanged, there is not significantly positive correlation between management equity ratio, the size of the supervise board and the internal control effectiveness. Then, according to the conclusion and the specific conditions of the companies listed on GEM, the author raises suggestions to improve the effectiveness of internal control.The characteristic mainly reflects in the following two parts:first, in terms of the measurement of the internal control effectiveness, this paper selects the indicators based on the internal control objectives, get the scores of internal control effectiveness through principal component analysis, and consider the scores as internal control effectiveness. Second, this paper use the data of companies listed on GEM as the research object. And the limitation of the article is mainly manifested in the following:first, the evaluation method of the internal control effectiveness may not valid. Second, the author does not take account into the external governance. Third, the research ignores the non-listed companies. Finally, the article takes the sample as a whole to study, but does not carry out the study from different industries.