Correlation Of Internal Control And Creditor Protection

The creditors which influence the companies’ overall development, its interests has been ignored, the reasons are as follows, the more unique ownership structure in China, the inadequate legal protection of investors, the underdeveloped corporate bond markets and the state-owned commercial banks are listed companies in China’s largest creditor. C reditors can only get fixed return promised in the contract when corporate profits earnings, but have to undertake major losses in the company losses or bankruptcy. Internal control based on the financial information as the carrier, it needs to provide business information to the internal and external information demander, the creditors in accordance with the information to make informed decisions. Therefore, we believe that internal control is an important mechanism for the protection of creditors.In this paper, 2011-2013 Shanghai and Shenzhen A-share listed companies as samples, from this two perspective, self-protection and spontaneous protection of management / shareholders, investigate the relationship between internal control and the creditor benefit protection. First, the study of internal control system whether it helps to protect the interests of creditors. Second, whether managers / shareholders consider of the interests of creditors, so that they reduce to take up the funds by asset substitution behavior.The empirical results show that the self-protection from creditors’ view, a high level of internal control system can bring more protection for creditors, and manifested of the new debt capital, the cost of debt capital, debt maturity and other debt covenants characteristics; from the management / shareholders perspective, a high level of internal control quality can significantly avoid collusion between shareholders and managers, taking funds of creditor, so that to guarantee true and reliable financial information, and efficient compliance management mechanism, to achieve the protection of the interests of creditors. In addition, compared to corporate governance, internal control play a greater role in protecting the interests of creditors by the way of signal transmission.