Influence Of Material Defect Of Internal Control On Debt Contract

In order to perfect the capital market and improve the governance of listed companies, in 2011, our country gradually and fully implements “Basic norms of internal control” and the three guidelines. The disclosures of internal control information become compulsory from voluntary. For granted, defects of internal control, especially the material defects become the focus. Ineffective internal control can’t reasonability safeguard enterprise target. Thus, the enterprise internal management level drops and the authenticity of financial information conveyed to the debt investors is difficult to identify. At last, Ineffective internal control reduces the transparency of capital market information and efficiency of capital allocation. In order to protect their own rights and interests, Creditors as rational investors will carry out the debt financing constraints to enterprises with high risk. This article starts from the factors of debt contract and studies which debt financing constraints measures the creditors will carry out on the enterprises with material defects of internal control. In the face of the debt financing risk, will the creditors cut lending, increase the cost of debt capital and reduce the issuance of long-term debt? Under the background of Chinese special market, will enterprise’s property rights affect creditors’ decisions of debt financing constraints? These problems are worth exploring.This article selects listed real estate companies in years 2009-2013 as the research samples. combined with the internal control information disclosure and material defect signs to collect the information about material defects of listed real estate companies and using the method of normative and empirical, this article analyzes the influence of material defect of internal control on new debt、debt capital cost and debt maturity level. Fatherly, the samples classified by the property are studied. The study finds that creditors will carry out the debt financing constraints on the listed companies existing internal control material defects. When the company has material defect, creditors will raise the cost of debt capital, bear high risk to obtain high yield; Compared with longterm debt, creditors tend to issue short-term debt to use external supervision and governance effect of short-term debt against default risk. But research doesn’t find that creditors will take measures to reduce the lending to safeguard their own interests. Maybe, because real estate has the characteristic of long development cycle and capital taking up a long time or creditors confront the big performance pressure. Research on the property also finds that the internal control material defects of non-state enterprises are suffers more serious debt financing constraints than the state-owned enterprises. This suggests that China’s state-owned enterprises enjoy the soft budget constraint and let creditors weak the attention to internal control defects. Further, expanding the scope of the research on internal control defects, use of the existence of the internal control defects to certify the robustness of consequence.The conclusion is still significant. Finally, to perfect internal control defects determination and disclosure system in our country, promote capital market information transparency and safeguard the rights and interests of bond investors, this article puts forward some suggestions.