The Empirical Research On Internal Control And Inefficient Investment

Investment is an important part of corporate financial management, and it’s also an important part of national economic activity. Seeing from micro enterprises, efficient investment is an important way for them to gain profit and meet the interest needs of shareholders, while it’s main means to achieve added business-value. From the perspective of a country, investment, consumption and exports constitute the three approaches to promote economy. in the beginning of this century, over-investment is general, but the data from China’s average net investment rate of state-owned enterprises(SOES) shows a downward trend in recent years, especially after 2012, net investment growth dropped sharply. it seems that China SOEs have fallen into lack of investment. Being in the transition stage, the factors that influence china enterprise investment are more complex than the theoretical analysis. However, most scholars agree the presence of inefficient investment in our enterprises. in one way, the occur of inefficient investment is due to the ability of policy makers, in the other, it’s related to failure of the corporate governance.This paper begins with the summary of the domestic and overseas research on internal control and inefficient investment, then defines the scope of this paper. Based on the principal-agent theory, asymmetric information theory, transaction cost theory, signaling theory, it analyzes the impact mechanism of internal control on non-efficiency of investment, then harnessing the 1869 samples of China’s listed SOES from 2011 to 2013,choosing inefficiency investment(including over-investment and under-investment) as explanatory variable, internal control quality as the explanatory variable, ownership, free cash flow, Tobin-q, asset, leverage, cash flow from sales, operating cycle, established-time and other governance factors as control variables, building the inefficient-investment model and internal-control inefficient-investment relationship test model to study the relationship between internal control and inefficient investment. The empirical results show that: Inefficient investment in SOEs takes complex forms, while under-investment is common, some enterprises tend to invest excessively. in SOEs, internal control is in negative relationship with over-investment and under-investment in the view of major shareholder, however, from the perspective of market, this change to be positive. After the disclosure of the internal control weaknesses(ICWs), internal control effectiveness in SOEs increases. The evidences of ownership influencing investment efficiency through internal control are not obvious. Based on above analysis, the author make suggestions on ways to improve internal control and investment efficiency of SOEs.The innovations of this study are as follows. firstly, recognizing forms of inefficient investment in SOEs by employing inefficiency-investment model, and finding out the evidence of under-investment in SOEs, then, researching on the correlation between internal control and inefficiency investment in dynamic perspective, finally, re-evaluating the effect of internal control on inefficient investment in SOEs.