CORPORATE GOVERNANCE AND INTERNAL CONTROL INDEX: CASE OF CHINESE FINANCIAL ENTERPRISES

Abstract

The article utilizes data on Chinese A-share listed financial enterprises from 2011 to 2020. It employs the internal control index as the dependent variable, corporate governance as the independent variable, and company characteristics as the control variables to evaluate the efficacy of corporate governance indicators on the internal control index to enhance the internal control level. This paper's empirical analysis is conducted using a two-way fixed effects model. In terms of shareholding structure, the internal control index is significantly negatively related to the proportion of state-owned shares and positively associated with ownership concentration; in terms of the board of directors, the internal control index is significantly positively related to the number of board meetings, the proportion of independent directors, and the number of professional committees; and in terms of management, internal control is significantly positively related to the number of board meetings, the proportion of independent directors, and the number of professional committees. Regarding management, the internal control index is significantly and positively correlated with executive compensation and shareholding ratio; in terms of party organizations, it is significantly and positively correlated with "two-way entry." Unlike previous research on the effect of corporate governance on the internal control index, this paper is based on the Chinese socialist system. It encompasses party organization participation in corporate governance.