Environmental Uncertainty,Internal Control And The Cost Of Debt Capital

Debt financing is an important part of corporation financial management,and its cost is critical for enterprises.China has entered a new normal of economic growth,its economic development is transforming from high speed growth to high quality development.Before achieving high quality development state,China’s enterprises will be in an unstable state,thus government will continue to explore new ways of economic development.Under the background of new normal of economic growth,the uncertainty of environment increases,and enterprises’ operating risk and financing risk will increase correspondingly,which will have an impact on the cost of debt capital.In addition,with the establishment and improvement of China’s internal control system,internal control plays an important role in the company’s management,it improves the quality of accounting information and reduces the degree of information asymmetry between creditors and debtors,thus has a certain impact on the cost of debt capital.Making a thorough inquiry about the relationships between environmental uncertainty,internal control and the cost of debt capital can help enterprises to deal with the environmental uncertainty’s impaction on the cost of debt capital through the improvement of internal control construction,so as to provide guarantee for the healthy development of the enterprises.Based on the agency theory,asymmetric information theory,resource dependence theory and signaling theory,after reading a large number of relevant literatures,this paper proposed the research hypothesis.In order to test the hypothesis,this paper choose all the non-financial companies of China’s capital market from 2011 to 2016 as samples,with the help of STATA and Excel data processing software to conduct empirical test,so as to explore the relationship among the environmental uncertainty,internal control and the cost of the debt capital of the enterprise.Empirical study results show that: firstly,the higher the environmental uncertainty is,the greater the cost of debt capital is;secondly,the higher the internal control quality is,because of smaller degree of earnings management,higher transparency of information and higher operating efficiency,the smaller the cost of its debt capital is;thirdly,internal control can weaken the relationship between environmental uncertainty and debt capital cost.In addition,through the analysis of the results of descriptive statistics,this paper found that the variance of environmental uncertainty variable is large,which means that the capacity to response to environmental uncertainty is uneven in Chinese enterprises,When the environment of the enterprise changes,some enterprises may not able to expect the change or to know how to deal with the change.Enterprises need to face the economic consequences of environmental uncertainty and actively deal with the impact on the cost of the enterprise debt capital.Based on the above research,this paper puts forward the following suggestions:(1)Enterprises should improve their own internal control construction to reduce the debt capital cost of their own by improving the level of internal control and construction of enterprises to improve the quality of accounting information,protecting the security of the assets of the enterprises,guaranteeing the legal compliance of enterprises and improve the business efficiency of enterprises,and reducing the information between the investors and other investors and to resist the impact of environmental uncertainty;(2)Enterprises should face at environmental uncertainty,improve their awareness of risk,and actively respond to environmental uncertainty by adopting risk transfer means.