Influence Of Internal and External Governance on The Effectiveness of Internal Control

Abstract

This paper takes the listed companies of China’s Shanghai Stock Exchange form 2017 to 2019 as the research samples. It selects interior factors and exterior factors such as capital structure, executive rights, external audit pressure and media supervision respectively, and analyzes the influence of various factors on the quality of internal control of the company, providing reference for the listed companies. The results show that the ratio of debt financing and executive rights are negatively correlated with the effectiveness of internal control, but the negative correlation between executive rights and the quality of internal control will be disturbed by executive compensation incentives and external governance factors. In terms of external governance, external audit pressure and high media attention can improve the effectiveness of internal control of listed companies, but the impact of audit opinions has a certain lag. Further analysis shows that although the model is more convincing when both positive and negative media reports are taken into account, media supervision has a stronger supervisory effect on the quality of internal control of the company when negative media reports are dominant, compared with the situation when positive media reports are dominant.