Research On Decision Rights Allocation And The Effectiveness Of The Internal Control

Not only the external environment but also the internal environment are more and more complicated, at the same time companies are expanding very quickly, so that internal control of company has been evolving. In 2008, basic norm of internal control requires listed companies to evaluate the effectiveness of its internal control and to disclosure the report, which leads more and more attention to the effectiveness of internal control. Although there are lots of researches on various factors of the effectiveness of internal control, the influence of decision rights allocation hasn’t been studied yet. So this paper discusses how the decision rights allocation influences the effectiveness of internal control.We firstly explain the definition and measurement method of decision rights allocation and effectiveness of internal control in the paper. Secondly, we propose the hypothesis based on transaction cost theory, principal-agent theory, asymmetric information theory and internal capital market theory. Then we collect the data on A-share listed companies of SSE during 2012 to 2014. Finally we do the statistical analysis based on the collected data, including correlation analysis, multiple regression,etc.The study founds that the effectiveness of internal control is higher when the finance company has been established. The stusy also founds that the effectiveness of internal control is lower when there are more directors who also serve as executives.Based on the above findings, we propose the following suggestions:to centralize the longitudinal decision rights, and to decentralize the transversal decision rights. Here are three specific measures:to avoid CEO duality,to reduce the number of directors who also serve as executives, to develope the market of independent directors. This paper provides a new idea on how to improve the effectiveness of internal control.