Research On How Internal Control Deficiencies Disclosure Effect The Enterprise Value

All aspects of the enterprise production and operation activities will be involved in the internal control. Perfect internal control system can effectively reduce the operation risk of the enterprise and prevent the occurrence of deviation in management goal. In recent years, there are still many illegal frauds, which make the investors pay more attention to the internal control, while the listed company internal control disclosure is an important way to obtain such information. In 2008,the Ministry of Finance, Securities and Futures Commission, the Audit Commission, the China Banking Regulatory Commission, China Insurance Regulatory Commission jointly issued the Enterprise Internal Control Basic Norms, putting forward some corresponding requirements on the construction of internal control system, which indicated that our internal control information disclosure became mandatory. In 2010, five ministries jointly issued the Supporting Guidelines for Enterprise Internal Control, adding more detailed rules on internal control information disclosure. It also made internal defect information in Shanghai and Shenzhen Stock Exchange be mandatory disclosed since 2012. These provisions greatly promoted the construction of the internal control system and had a positive effect on the effectiveness of the capital market. However, whether it has been effectively performed and how internal control deficiencies disclosure effect the enterprise value are still worth further discussion.This paper collects 2011-2013 internal control relevant reports, finds that the number of internal control deficiencies information disclosure increases year by year, but the relevant provisions still have not obtained the effective implementation, there are still part of the company not to disclose the relevant information, some disclosures are merely formalities. Meanwhile, this paper bases on the background of the internal defect information came into the mandatory disclosure stage, selects 2011-2013 Shanghai listed companies as samples, according to the asymmetric information theory, efficient market hypothesis and other theories, refers previous studies, makes logical analysis on this issue thus puts forward the research hypothesis, uses multiple regression model to analysis how the internal control deficiencies effect the enterprise value. The paper finds that the enterprises whose internal control has deficiencies have lower value than impeccable ones, the higher severity is, the lower value is. When there are run defects and design flaws exist, or when the five elements of internal control is not perfect, the enterprise value also reduces. The paper also finds that there is no difference in whether or not the enterprises disclose the internal control defect information.By studying the disclosure of internal control weaknesses’negative impact on enterprise value, this paper hopes to call external stakeholders to pay more attention on the quality of disclosure information in internal control. And this paper expects to provide realistic suggestions for the relevant regulatory authorities to perfecting the system of internal control weaknesses disclosed. In the long run, the mandatory information disclosure of internal control deficiencies will force listed companies to strengthen internal control disclosure of information in order to reduce defects, which virtually promotes the continuous improvement of internal control and improvement of effectiveness of the capital market. All this can help investors get enough information to make an accurate assessment on enterprise value.