Research On Market Reaction Of Weaknesses Disclosure Of Internal Control

After the Enron Event in 2002,the comment of the internal control system and the disclosure of the internal control information became the important institutional arrangements for the governance of listed companies in various countries.China has also introduced a series of norms and policies.In May 2008 the Ministry of Finance issued the Basic Norms of Internal Control which was implemented firstly by the overseas listed companies from January 1,2010 and lately by domestic listed companies from 2011.In April 2010,the Ministry of Finance with the SSRC,the Audit Commission,the SASAC,CBRC,the CIRC and other departments issued the Guidelines for the Application of Internal Control,Guidelines for Corporate Internal Control Comment and supporting guidelines.The internal control norms and the supporting guidelines require the listed companies to carry out internal control self-evaluation and external audit and disclose the internal control self-evaluation report and the internal control audit report of the accounting firm while disclosing the financial report at the same time.In 2012,the SSRC and the Ministry of Finance issued the Notice on the Implementation of the Rules for the Implementation of the Internal Control System of the Listed Companies in 2012,which requires all listed companies in China to strictly follow the company’s control rights in the future,market value scale,the degree of standardization and other conditions of implementation and time scientific division,steadily and progressively promote the implementation of enterprise internal control system.Under this background,the information related to the internal control of the listed company can be fully disclosed,and its internal control weaknesses information will have a role in the stock price of the listed company,whether it will affect the investment decision of the investors,in other words,whether the information of the internal control weaknesses is worthy of discussing.Under this background,this paper focuses on the internal control system of listed companies and studies the market reaction caused by the disclosure of internal control weaknesses.Based on the background of that the internal control information entered the mandatory disclosure stage in 2012,this paper takes the listed companies of Shenzhen Stock Exchange and Shanghai Stock Exchange from 2011 to 2014 as the research samples,and analyzes the market reaction of information disclosure of internal control information of listed companies and information disclosure of internal control weaknesses.This paper uses DIB database and CSMAR database to collect data,and uses regression analysis,event research method and empirical analysis by STATA software,which found:(1)The information of the internal control weaknesses disclosed by the listed companies has a negative market reaction,but the effect is not significant.(2)In the listed companies which disclosed the information of internal control weaknesses: the market reaction of whose opinion of internal control audit report is standard unqualified opinion is bigger than not;the market reaction of material weaknesses is greater than significant weaknesses and general weaknesses;the market reaction of disclosure of defects response is smaller than not.The innovation of this paper lies in two points.Firstly,it has a newer perspective.Recently the literature has mainly studied the internal control of the enterprise from the perspectives of identification and influencing factors of internal control information disclosure.This paper focuses on the internal control audit report of the listed companies and the internal control weaknesses disclosed in the internal control self-evaluation report.The paper studies the influence of the disclosure of the information of internal control weaknesses on the stock price of the listed company,and supplements the empirical research literature for the validity of the information of the capital market in China.Secondly,it could optimize the variable design.The existing empirical research literature related to the market reaction of internal control information disclosure does not take into account the factor that whether a listed company will take a response to internal control weaknesses,which affects investors’ decision.This paper introduces the variable internal control weaknesses response in the independent variable,which makes the variable and model design more reasonable.