Internal Control And Enterprise Value Of Diversified Enterprise

Diversification is a common form of enterprise strategy, which brings new challenges to the enterprise management. In previous studies, the theory paid more attention to the pros and cons of corporate diversification strategy, and the relationship between diversity strategyand the enterprise value has not yet formed a unified understanding. More often, scholars discuss the relationship between diversification and firm value from a single point of view regardless of the impact of other factors. As a result, the diversification theory is perfect from a single point of view, but when combined with other conditions, the relationship between diversification and firm value became ambiguous.We have witnessed many successful enterprises’rapid expansion of the scale of the enterprise and winning a place in the fierce market competition environment because of the diversity, but also witnessed more enterprises’a flash in the pan because of wrong diversification decision. Why different business diversification to show different results? What determines the success or failure of the enterprise diversification? Putting the controversy of diversification and firm value aside and removingthe prudent decision-making of strategy selection phase, resource integration, synergy and effective management control should be the key to answering this question.In recent years, internal control has been a hot issue in theory and practice. In 1992, COSO released the framework of internal control, which has become the most complete and widely used internal control specification in theory and is alsothe foundationof the basic norms of internal controland the supporting guidelines issued by China in 2008 and 2010. Although Internal control originfrom internal containment and its purpose lies in prevention of fraud, especially in 2004, the SEC issued the Sarbanes Oxley Act mentioned internal control is directly for Enron’s financial fraud problem. However, the internal control has be given more expectations in the development process, in addition to the reliability of the basic assurance of the financial reports, internal control goals also include the effectiveness and efficiency of the entity’s operations and the adherence to laws and regulations. Internal control has gradually become an effective means of enterprise management. Therefore, the internal control can be a reasonable way to realize the diversified value of diversified enterprises.The realization of the enterprise value depend not only on the rational allocation and effective combination of the factors of production, but also on more effective management to promote the efficiency of the allocation of the resources. Strengthen enterprise management is the most fundamental way on the basis of the combination of existing resource to achieve the efficiency of resource allocation. In order to study the relationship between internal control and enterprise value, it is an excellent way to study the relationship between internal control and enterprise value from the perspective of synergy effect.This paper is based on this idea and the existing literature to explore the relationship between internal control and corporate value from the perspective of synergy effect through empirical approach. Using the China’s A-share listed companies in2011-2013 as a sample, this paper empirically confirmed real role of internal control in promoting enterprise value, and further concluded that internal control can play an important role to promote diversification synergy effect. This is also one of the innovations of this paper. The conclusion of this paper provides an important theoretical basis and practical experience of the relation among internal control, enterprise value and synergy effect of diversified enterprise, and has good practical significance for the establishment of a good internal control.