Dissertation
Dissertation > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods

The Impact of Internal Control Over Financial Reporting Quality on Company Performance

Author DiJia
Tutor LiuJiWei
School Dongbei University of Finance
Course Financial Management
Keywords internal control internal control over financial reporting company performance
CLC F272;F224
Type Master's thesis
Year 2011
Downloads 138
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With the "Basic Norms of Enterprise Internal Control" and its supporting guidelines are issued and implemented, China builds its first standards for internal control framework and puts forward higher requirements for listed companies. The internal control of China’s listed companies is still in the initial stage, most of the listed companies’internal controls are based on the financial report. But it requires a lot of input to establish a perfect internal control over financial reporting system. Presently, most of the enterprises establish and improve internal control over financial reporting is subject to the policy of mandatory requirements, but lack of autonomy in the construction of internal control. Therefore, the thesis attempts to research and study on the impact of internal control over financial reporting on company performance, which in the hope of providing references for China listed companies internal control over financial reporting development and improvement.On the basis of lacking empirical support on the discussion of the internal control over financial reporting and company performance, this thesis analyzes the theory relationship between internal control over financial reporting quality and company performance. By setting up indicators to measure the quality of internal control over financial reporting and company performance and using data of listed companies, this thesis takes empirical study on the impact of internal control quality on company performance. This thesis finds internal control over financial reporting quality has a positive impact on company performance basing on the research conclusions.This thesis can be divided into six parts:Firstly, the thesis presents the background and significance of the research, ideas and basic framework, and also illustrates the innovation of the thesis.Secondly, through reviewing large numbers of literatures related, the thesis summarizes the ideas and the indicators to measure the quality of financial reporting internal control and company performance. Also the thesis controls the other indicators which have significant impact on company performance. This part provides the basis for follow-up study.Thirdly, on the basis of the theory analysis of internal control over financial reporting theory and the relationship between internal control over financial reporting quality and company performance, the thesis proposes the research hypothesis:weaknesses in internal control over financial reporting of listed companies are negatively associated with company performance. The thesis tests the hypothesis by examining the coefficient of internal control over financial reporting quality which measured by internal control over financial reporting deficiencies is significantly less than 0.Fourthly, this part introduces the selection of research samples and data sources. The thesis selects the A-shares listed companies in Shanghai Stock Exchange in 2010 as the research samples, and removes the financial and missing samples. We use the cross-sectional data to analysis the impact of internal control over financial reporting quality on company performance. The thesis chooses the rate of return on common stockholders’ equity after deducting non-recurring gains as a measure of company performance, and chooses the internal control over financial reporting deficiencies as a measure of internal control over financial reporting quality. If the company has internal control over financial reporting deficiencies, the variable takes lotherwise takes O.The thesis also controls the following variables:company size, capital structure, and industries.Fifthly, this part includes descriptive statistical analysis, correlation analysis, regression analysis and robustness testing. The descriptive statistical analysis includes the average, maximum and minimum of the variable. On the analysis of the correlation between variables is investigated the correlation between each variable and the existence of selected variable multicollinearity problems. The multiple regression model is to study whether to set up the hypotheses. The robustness testing adopts other variables as the explained variables to study the robustness of research results.Lastly, the thesis draws the main conclusion based on the empirical research and points out the deficiencies. It also forecasts the future of this research, and gives some advices on how to improve the internal control over financial reporting of listed companies.The thesis takes empirical research methods and includes both qualitative analysis and quantitative analysis and selects the A-shares listed companies in Shanghai Stock Exchange in 2010 as the research samples. The descriptive statistics, correlation analysis and multiple regression analysis are used to study the impact of internal control over financial reporting quality on company performance. The thesis finds that internal control over financial reporting quality has a significant positive role in promoting company performance.The innovations of the thesis are as follows. On the one hand, domestic and international research on the internal control most concentrated on the factors affecting information disclosure of internal control over financial reporting quality. And the perspectives are generally on the audit, management control, behavior control and corporate governance. However the perspective of this thesis is on company performance. The empirical testing is used to study the impact of internal control over financial reporting quality on company performance. On the other hand, the existing researches on the company performance mostly choose Tobin Q, return on assets, rate of return on common stockholders’equity and earnings per share as a measure, but the above have limitations or indicators or do not apply in China. However the thesis chooses the rate of return on common stockholders’ equity after deducting non-recurring gains as a measure of company performance.

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