Does Internal Control Quality Affect The CFO Compensation?

In 2008, Our country including the Ministry of Finance and other five ministries jointly issued the enterprise internal control basic norms, and issued the corresponding guidelines in 2010 as follow, which symbolized that internal control standard system of application in China have gradually formed. The perfection of system further promotes the development of internal control practice, the enterprises invest manpower and financial resources to upgrade the internal control system, to meet the requirements of related systems. In order to guarantee the effect of internal control construction, the enterprise needs to confirm the responsible person, and makes the effect for the construction of internal control associated with the benefits of the responsible person. As the major person in charge of the financial report, The CFO in enterprise plays an important role for the effectiveness of internal control on financial report. Therefore, the enterprise’s internal control construction quality has become an important dimension to assess CFO’s duty, and will be reflected in his/her compensation.This article starts to define the main responsible person of internal control——CFO, analyzes the effect of the internal control quality on CFO compensation mechanism and puts forward the hypothesis theoretically. Then the paper selects A-share listed companies from 2011 to 2013 as the research object to make the empirical analysis to test the hypothesis. Further, considering the special institutional background in our country, the paper discusses the research from two aspects of the nature of property rights and the administrative monopoly of the industry. We get the results as follow:there is a significant positive correlation between the internal control quality and CFO compensation in the whole samples; and in state-owned enterprises, the association between internal control quality to the CFO compensation is more pronounced than that in the non-state-owned enterprises; in non-administrative monopoly enterprises, internal control quality is significantly related to the CFO compensation, however, in administrative monopoly enterprises, there is no significant correlation between internal control quality and CFO compensation. In addition, in order to make the conclusion more robust, this article conducts some robustness tests from the internal control quality, time lag effect of internal control, CEO compensation, endogenous test. Finally, according to the research conclusions, this paper gives related suggestions from the perspective of regulatory institutions, enterprises and the public outside respectively.