| In the21st century, a series of large international companies, including Enron Corporation, continuously exposed financial fraud scandals, which triggered a wide public attention on the issue of information disclosure of companies’internal control. In July2002, the U.S. Congress officially passed the "Sarbanes-Oxley Act"(SOX Act-called for short). SOX Act requires companies to disclose their internal control reports as mandatory. More and more countries and regions begin to put mandatory demand for listed companies, requiring them to disclose their internal control information to the public."Basic Standards for Enterprise Internal Control" was launched by China’s regulatory authorities in2008. It required that from July1,2009, within the scope of the listed companies, internal control system must be established and be effectively implemented. It also encouraged non-listed large and medium enterprises to follow the standards. On April26,2010, the publishing of "Enterprise Internal Control Guidelines" in2008and "Basic Standards for Enterprise Internal Control" marked the basic complement of China’s internal control standards system. From January1,2012, the companies listed on the Main Board of the Shanghai Stock Exchange and the Shenzhen Stock Exchange should follow this standard. However, most listed companies lack full command of their internal control system. What’s more, the disclosure of information is usually without substantial content. Besides, there was no mandatory demand of disclosure of internal control information on the GEM. Most companies listed on GEM are just start-ups with either small or medium size. Their internal institutional governance is still imperfect. So their level of information disclosure is below the level of Main Board listed companies. In order to promote the development of China’s GEM market growth, the research on the standard and relevant factors on information disclosure are of great significance. As a supplement to the main board market, GEM is an important part of the capital market. GEM not only improves the financing channels for the high-tech enterprises, but also helps to facilitate the adjustment of national industrial structure so as to promote economic development. However, there still exist several problems in GEM that we can never ignore. The managing board of GEM-listed companies does not always fully disclose sufficient information to their investors, due to a variety of reasons. And it is rather difficult for investors to obtain information from other sources, except the information from the enterprise’s own disclosure. Thus, A "message asymmetry" comes into being, which not only affect the investment decisions of investors, the companies listed on GEM themselves may be damaged due to closure of information or false information, or even be driven out of the market.Therefore, improving the quality of information from internal control disclosure not only helps the user to make effective decisions, but also reduces the level of information asymmetry, thus further decreases the risk of moral hazard, so that the company of high quality level can obtain investment capital and achieve a favorable and fast development. Under this context, the research on the disclosure quality of GEM internal control is important and meaningful:objective evaluation of the disclosure quality of internal control information reduces information asymmetry in the stock market; understanding the factors of disclosure and analyzing empirically the relevant relationships between factors and the disclosure quality of internal control information helps to reveal and improve the disclosure quality of internal control; analyzing the level of internal control disclosure of information provides certain protection to the investors, thus ensures sustainable development of China’s capital market.The main contents of this paper are as follows:The first part is an introduction. It describes the research background, purpose, significance and innovative parts.The second part is the literature review. It sorts out the China’s and foreign literatures which are related to the disclosure of information of internal control and compared both domestic and foreign research results.The third part is the theoretical analysis. It gives a definition on the concepts of GEM companies, internal controls and disclosure internal control information. It also presents a simple description of COSO framework and the basic norms of internal control in enterprises. In addition, it provides a brief review of tine efficient market hypothesis, agency theory and asymmetric information theory, pointing out their importance in the study of the information disclosure of internal control in GEM listing companies.The fourth part is the evaluation of information disclosure quality of internal control in GEM listed company. The author established the quality evaluation system of the internal control disclosure in GEM companies and uses fuzzy AHP to give weight to each factor. Through a selection of total293companies listed on2011GEM as a sample, the author scored the each section on tine audit opinions of internal control through the company’s annual report, self-report of internal control and CPA audit opinion. That is, according to the final scores of the quality of information disclosure of internal control, the author reached the final results.The fifth part is the empirical study on the factors of the disclosure quality of internal control information in GEM listed companies. The author takes the disclosure quality of internal control information of China’s GEM companies as explanatory variables, takes company’s size, financial leverage, profitability, the time.going onto the market, ownership concentration, managerial ownership, the proportion of independent directors, two jobs in one, board meetings, audit agency authority and underwriter reputation as explanatory variables, conducts a empirical study in a linear regression model, and analyzes the various factors on the disclosure quality of internal control information.The sixth part is conclusion. In this part, the author listed the recommendations for corresponding improvement.The conclusion:(1) Overall speaking, the quality of China’s information disclosure of internal control in GEM companies is low and various in different companies.(2) All the sample companies have disclosed their reports on internal control, but most of the contents are unadoptable.60%of the sample companies did not disclose the CPA audit opinion in internal control self-reports.(3)2011GEM listed companies did not disclose the details of their internal control deficiencies. Only a few samples companies simply mention that there were no major defects, which is meaningless for users at all. (4) From the point of view of three evaluation modules, annual reports and internal control self-assessment reports were published in the first half of2012.108sample companies did not mention the deficiencies and measures for improvement in the internal control self-evaluation reports.19sample companies changed their accounting firms. In internal environment, over half of the sample companies did not disclose the corporate culture, while gave more details about the establishment in general meeting, the Board and the Supervisory Board. Most of the sample companies disclose in their annual reports the internal and external risks, but not the risks and corresponding preventions. A few GEM companies did not give details about the future potential risks. Among the controlling elements, the disclosure of "related party transactions control, control of external guarantees, investment control, capital controls" is more detailed than that in "monetary capital controls, procurement and payment control, sales and receivables control".157listed companies did not disclose the management system of investor relations, and only32did in detail-the information communication channel is vague. Under internal controls, more than50%of the directors of independent GEM companies did not give evaluation on tho company’s internal control mechanism.(5) From the empirical research in this paper, the author reached the conclusion that the company’s financial leverage, profitability, time going onto the market and the proportion of independent directors can help to promote the disclosure quality of internal control information of companies listed on GEM.(6) The company’s size, ownership concentration, managerial ownership, authority of audit agencies and underwriter’s reputation keep in line with the information disclosure quality of internal relations. However, it is not passed through the significant test.(7) Two careers in one, the number of board meetings are not passed through the significant test. Meanwhile, the regression results are not consistent with the assumptions.The Innovative Aspects:(1) The idea of the evaluation system of information disclosure quality of internal control in the GEM is innovative. It is built on the ideas from the following three aspects:(1) it learns from Yang Yufeng, Wang Huoyin, Cao Qiong(2010)’s evaluation system framework on34indexes of information disclosure of internal control in2007Shanghai Stock market;(2) Refer to the "Internal Basic Norms in Enterprises" and supporting guidelines, the standardize operational guidelines of Shenzhen Stock Exchange GEM listed companies, the company prospectus GEM which was published in2009and the listing rules of the internal control system and its disclosure requirements;(3) It combines self-reports on the internal control of the GEM company’s, annual reports and internal audit CPA submissions. These three reports provide effective disclosure of the actual content.(2) So far, the methods of evaluating infonnation disclosure quality of internal control can not reach in one. Some scholars defined the disclosure of internal information as either detailed or simple. In this paper, on the basis of Yang Yufeng, Wang Huoxin, Cao Qiong(2010)’s evaluation system on information disclosure quality of internal control, the author combines the actual situations that China’s GEM are facing, builds the index evaluation system, and uses "the fuzzy analytic hierarchy, process, calculates the levels of indicators weights, reaching a goal of combination of both subjectivity and objectivity.(3) In-depth study of the factors on information-disclosure quality of internal control of GEM listing companies. The author takes the above disclosure quality as explanatory variables, conducts empirical research on the factors that affect the information disclosure quality of internal control, thus to help to further explore the ways to improve the company’s information disclosure quality of internal control. |
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