Research Of Management Incentive Effect On Internal Control Quality In State-owned Listed Companies

With economic scandals in Enron and WorldCom being discovered and the management issues being disclosed in Huaneng Group and CNOOC Group, internal control has been concerned more and more in domestic and foreign academia. Our country has published a series of laws and regulations, such as the "basic norms of internal control" and supporting guidelines. We also require that domestic listed companies should disclose audited internal control report, but the situation of enterprise internal control implementation is still not optimistic. Compared with private enterprises, the state-owned listed companies have a better internal control system and they are regulated more strictly. But in recent years, the problems of internal control in state-owned companies are more prominent. In my opinion, one of the important reasons is the negligence of the implementers. The effectiveness of internal controls is not incorporated into company management’s assessment and incentive mechanism. Although the company management has the responsibility to implement internal control, they are lack of pressure and motivation to fulfill the responsibility.This paper analyzed and empirically researched the management incentive’s impact on internal control effectiveness with the literature analysis method, standard research method, and statistical analysis method. The research is based on Principal-a gent theory, Asymmetric information theory and Signaling theory. The research is combined with the situation of internal control implementation and the circumstances of compensation incentive, promotion incentive, and equity incentives in Chinese state-owned enterprises. The paper complemented the current research of internal control affecting factors and economic consequences of management incentive implementation.The study conclusions are those:the implementation of compensation incentive, promotion incentive and equity incentive in state-owned listed companies will help to enhance the effectiveness of internal control. There is a significant positive correlation between the level of management incentive and the internal control quality. And the improvement of management incentive level is conducive to promoting the effective implementation of internal control. But the administrative experience of CEO will weaken the enhancement to the quality of internal control by the CEO incentive.