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Investors’ Perceptions of Risk Associated with Internal Control Information Disclosure

Author: ZhangChuanCai
Tutor: ChiGuoHua
School: Dongbei University of Finance
Course: Accounting
Keywords: internal control information disclosure internal control weakness audit report investors risk perception
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 505
Quote: 2
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Abstract

The Basic Standards for Enterprise Internal Control was jointly announced by China’s five ministries including ministry of finance in May 2008 and the supporting guidance followed in April 2010, both of which required that listed companies self-assess their internal control, disclose annual internal control self-assessment report and invite accounting firms with securities and futures business qualification to audit the availability of internal control in their companies. However we should answer all these questions whether this rule is suitable for the reality of our country, whether the disclosure of enterprise internal control information can provide investors with useful information, and whether investors can effectively react to and how do they react to the disclosure of enterprise internal control information.This thesis research the influence of enterprise internal control information disclosure on the risk perception of investors through experimental research method. By studying the behavior that investors assess risk and make investment decision with internal control information, we answer the question that how investors in our country’s securities market react to internal control information disclosure, and at the same time, examine whether the rule about enterprise internal control self-assessment and audit meets the requirement of the present market (especially the needs of investors) and reaches the goal. This thesis is organized with five parts as follows.The first part is the introduction of the thesis. It introduces the motivation and meaning of this thesis and points out the content, method, the structure arrangement and the innovation points in this thesis.The second part is the theoretical basis and literature review. It introduces the theoretical basis of internal control information disclosure, including signal transfer theory, agency theory, information asymmetry theory and the theory of decision usefulness, etc., and then summarizes the research status of internal control information disclosure and the development trend at home and abroad. The third part is the research method. In this part, we put forward the research hypotheses, introduce the design of the experiment, the participants, the experiment task, the operation process and the research of variable.The fourth part is data analysis and the experimental results. We conduct the manipulation checks and obtain the experimental results through multiple regression analysis, variance analysis, comparative analysis and path analysis with the experimental data.The fifth part is the conclusion and policy suggestions. We introduce the conclusion and limitations of the study and put forward policy suggestions. According to our country’s system and cultural background of internal control information disclosure and the experimental results, we put forward some policy suggestions about enhancing our country’s internal control information disclosure from three angles including government regulation, listed companies and intermediary institutions.This thesis concludes that the internal control information (including internal control weakness and internal control audit opinions) certainly has an impact on individual investors’ risk assessment; the severity of internal control weakness directly influences individual investors’ expected investment risk assessment and at the same time indirectly influences individual investors’ expected investment risk assessment through trust on enterprise managers. Internal control audit report has significant effect on individual investors’ expected investment risk perception; compared to managements’ internal control self evaluation, certified public accountants’ evaluation of internal control both plays an alternative role and has incremental information value to individual investors; the higher level of usage of internal control audit opinion by individual investors, the more it will strengthen negative influence of internal control weakness. These conclusions prove that the rule about enterprise internal control self-assessment and audit meets the requirement of the present market and, at some extent, reaches the initial goal.The innovation and contributions of this thesis are embodied in two aspects. On the one hand, this thesis studies the influence of enterprise internal control information disclosure on the risk perception of investors, and tests the effectiveness of the rule about enterprise internal control self-assessment and audit, which provides in-depth theoretical basis for the regulators in policymaking and modification. On the other hand, concerning the questioning that the main international accounting research suffered in recent years (singleness in subject selecting, lack of innovation and academic), the author brings psychology theoretical and experimental methods into internal control research, which will guides domestic scholars to concern the application of behavioral science in the fields of internal control and even accounting research and which will rich the content and the method of internal control research. This thesis will inspire the domestic scholars to find new way of internal control research and set the stage for follow-up study.

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