Research On The Relationship Between The Execution Level Of Effectiveness Of The Internal Control And Cost Of Equity Capital

The successively publication of Basic Standards for Enterprise Internal Control(referred to as the "basic norms")(2008) and "Enterprise Internal Control Guidelines"(2010) marks the foundation of standardized internal control system in our country. With its classific and partial implantation of the scope, a climax of the construction and implementation of internal control system happens in the companies listed on the Main Board of the Shanghai and Shenzhen as well as non-listed state-owned enterprises. Meanwhile, traditional focus issues(such as financing structure and the cost of equity capital) and relationship between the construction and implementation of Internal Control System naturally catch the sight of the listed company, government regulators and even theorists and become a hot discussion. So, this paper is trying to seek the answer: whether the execution level of effectiveness of internal control system would affect the cost of equity capital as well as how it affects.While comprehensively elaborating on the viewpoints of domestic and overseas professionals and scholars, the article makes a deep analysis on the impact mechanism of how the executive effectiveness of the internal control system affecting the costs of equity capital in an enterprise based on the Principal-agent Theory, the Asymmetric Information Theory and the Efficient Market Theory.Taking 57 enterprises both at home and abroad to be listed between 2010 and 2012 as study objects, the article works to develop a system to assess the execution effectiveness of the internal control system while expounding on the relevant theories, and with field study approaches to verify its relations with the costs of equity capital. Moreover, it further examines if the enterprises which implement such systems can make a difference with those without such benchmarks, as ways to determine the aforementioned impacts. The study concludes that the executive effectiveness of the internal control system has remarkably negative yet direct impacts on the costs of equity capitals.