Research On The Relationship Among The Institutional Constraint, Ownership Structure And The Effectiveness Of Internal Control

The concentrated expository of the financial scandal caused theorists and practitioners do the deeply think with the internal control and it’s weaknesses. Meanwhile the relationship between corporate governance and internal control became the research point based on the representing event of China National Aviation Fuel which the senior manager is above the corporate internal control. For regulating the corporate behavior and preventing the corporate from financial scandal, Chinese Ministry of Finance had promulgated the ‘basic norms of internal control’ in 2008 and ‘Enterprise Internal Control Guidelines’ in 2010 for providing the basis of listed companies’ internal control construction and specification. The promulgation of basic norms and guidelines symbolized the maturing of our internal control system. Good corporate governance structure is the basic of internal control, and the perfect internal control is the basic guarantee of company performance. In the corporate governance structure, ownership structure is playing an important role which based on property theory.Based on the previous studies of the ownership structure and the effectiveness of internal control, the paper studies the influence of institutional constraints to the relationship between ownership structure and the effectiveness of internal control. We take the data of Shanghai and Shenzhen Stock Exchanges as the examples to do the empirical test based on the above-mentioned issues. Compared to the company’s ownership which is highly concentrated, moderately concentrated ownership and equity constraints have better effectiveness of internal control; the proportion of senior manager-shares reduces the effectiveness of internal control of the listed companies. The result is not significant when examining the influence of institutional constraints to the relationship between ownership structure and the effectiveness of internal controls. There is a significant effect of institutional constraints to the relationship between ownership structure and corporate performance from the aspects of the state of controller and the proportion of senior manager-shares according to doing a further test by classifying the samples.