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Can High Quality Internal Control Reduce SMEs’ Cost of Equity Financing?

Guangbao Zhang 1,2, Mengge Zhou 2 , and Jikun Shi 1
1. School of Economics and Management, Hezhou University, Hezhou, China
2. School of Economics and Management, Northeast Petroleum University, Daqing, China
Abstract—Identifying a sample of listed companies of SMEs, based on voluntary internal control assurance reports, this paper examines whether high quality internal control of listed companies affect the cost of equity financing, under Chinese environment of information disclosure. The main finding is: internal control assurance information disclosed voluntarily by listed companies can play a signal function, and reduce significantly their cost of equity capital. Especially for listed companies that acquired reasonable guarantee of internal control assurance reports, they have even lower cost of equity financing. It is useful to guide companies evaluate internal control construction and disclosure, and promote internal control systems to implement smoothly.

Index Terms—internal control assurance, voluntary disclosure, reasonable guarantee, the cost of equity financing

Cite: Guangbao Zhang, Mengge Zhou, and Jikun Shi, "Can High Quality Internal Control Reduce SMEs’ Cost of Equity Financing?" Journal of Advanced Management Science, Vol. 5, No. 6, pp. 452-456, November 2017. doi: 10.18178/joams.5.6.452-456
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