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Title: The research on the economic effects of mandated ICFR disclosure in China : from insiders' perspective
Authors: Cao, Jian
Degree: Ph.D.
Issue Date: 2018
Abstract: Using a survey of corporate insiders from 1,167 Chinese listed firms, this thesis examines the direct effects of compliance with mandated ICFR disclosure. I find that corporate insiders of Chinese listed firms overwhelmingly perceive that compliance with ICFR disclosure rules has large positive effects on the quality of financial reports, firm performance, and confidence of capital market participants. Indeed, while the costs of compliance are notably large and remarkably similar to those emerging from U.S.-based evidence, the mean reported total cost for the first year of EICS compliance is arguably high (at 6.43 million RMB); a large majority of respondents perceive that the benefits far outweigh the costs, especially among firms with longer experience. The results of additional tests show that the benefits of EICS compliance reported in the survey map into real observable benefits of ICFR disclosure. In particular, firms that report higher benefits of compliance also tend to be recognized as having higher ICFR quality and to enjoy a lower cost of capital. The results of my tests, however, show that the effects of ICFR disclosure rules depend crucially on the extent to which firms are susceptible to market forces. In particular, first, I find that the effects of EICS compliance are larger and map into real observable benefits predominantly among firms with low government equity ownership. Second, I find that firms from provinces with less developed local market institutions tend to report higher benefits that are also more tightly linked with real observable effects of ICFR disclosure. Further analysis indicates that the insiders' attitude towards the importance of internal control would crucially determine the resource allocation behavior the firm will choose, and ultimately induce the corresponding compliance effects. This evidence may provide regulatory implications that it is very crucial for regulators to advocate the importance of internal control and stimulate managers to raise their inherent awareness of such control, so that they would design proper rule systems and pay more attention to internal control, which will in turn induce good internal control implementation. Overall, I conclude that corporate insiders ascribe to ICFR disclosure rules important benefits that are unique to China's institutional environment and may extend to other emerging markets that are considering similar regulation. The findings of my thesis support the idea that the effectiveness of mandated ICFR disclosure depends crucially on the broader market and institutional environment in which firms operate.
Subjects: Hong Kong Polytechnic University -- Dissertations
Corporate governance -- China
Corporations -- Auditing -- Law and legislation -- China
Pages: viii, 130 pages
Appears in Collections:Thesis

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