Research On The Influence Of Internal Control Quality On Earnings Management

With the diversified development of listed company's business scope,the financial situation is becoming more and more complex,incidents of manipulate financial information with earnings management often happen.For investors and other stakeholders,the financial reports disclosed by listed companies are the basis for obtaining information and making decisions.However,if excessive earnings management were used in the report,it would make the company's financial status and operating results lack of authenticity and reliability,misleading decisions and causing losses.For Companies,false financial information may attract investors to gain incomes in the short term,but it affects the long-term development.Once the financial fraud was revealed,it would bring disaster to the company.For the capital market,excessive earnings management would disturb the market economic order,hinder its healthy development.One of the objectives of internal controls is to ensure the quality of financial reports,the reason why many companies can manage earnings without detection is that a high-quality internal controls were not established and operated.The impact of internal control quality on earnings management has become a research hotspot,but academia disputes whether there is a negative correlation between them.This paper selected a larger time span and a wider range of samples for full sample analysis.Based on this,samples were grouped by the nature of property rights and listing sectors to study whether the negative correlation between different types of listed companies still exists.Based on combing relevant domestic and foreign related literature on the impact of internal control on earnings management,the theory involved in internal control and earnings management were expatiated and analyzed.The root causes of earnings management,the inevitability of internal control,and the theoretical connection between internal control on earnings management were discussed from three aspects: principal-agent theory,information asymmetry theory and government regulation theory.The impact of internal control quality on earnings management was explored from the five elements of internal control,corresponding assumptions was put forward based on the results of theoretical analysis.After then,Chinese A-share listed companies from 2013-2017 were select as the research object,the revised Jones model and Roychowdhury model were used to measure accrual and real earnings management respectively,analysis models of the impact of internal control quality on earnings management were built with the Dibo internal control index to measure the quality of internal control.Finally,Stata 15.1 was used for descriptive statistical analysis,correlation analysis,overall and group regression analysis and robustness test.The results showed that high-quality internal control can significantly inhibit accrual and real earnings management of A-share listed companies.Non-state-controlled listed companies have a stronger inhibitory effect than state-controlled listed companies,and SME and GEM listed companies have stronger inhibitory effects than main-board listed companies.