This paper takes the 2007-2016 Shanghai-Shenzhen A-share main board listed company as a sample to empirically examine the effect of the degree of marketization in different regions on the influence of high internal control quality of listed companies’ suppression on making quick money. It is found that the suppression of the quality of internal control of enterprises is only reflected in the enterprises in high-market areas . Furthermore, the higher the degree of marketization is, the more obvious ly internal control suppress es making quick money.
There is a contradiction between the real estate industry’s investment in real estate and the financial industry to “make quick money” and the urgent need for transformation of the real economy. How to restrain enterprises from “making quick money” has become a problem worthy of attention. Studies have shown that high-quality internal control can restrain enterprises from making quick money. However, China’s A-share listed companies are distributed in various regions. Will the degree of marketization in different regions affect the relationship between internal control quality and making quick money? In order to solve this problem, this paper uses the data of the Shanghai-Shenzhen A-share main board listed company from 2007 to 2016 to empirically examine the influence of the degree of marketization in different regions on the effect of high internal control quality of listed companies’ suppression on making quick money.
The rest of the paper is organized as follows: the second part is the literature review; the third part is the theoretical analysis and research hypothesis; the fourth part is the research design; the fifth part is the empirical test and the result analysis; the sixth part is the further analysis; the last is the conclusion.
The rapid profit of enterprises refers to their short-term arbitrage in the financial and real estate industries. It also refers to entrepreneurs who make government officials and foreign investment immigrants [
Fan Gang and Wang Xiaolu [
The operation of the company will be affected by the market environment in its region. Chinese scholars Fan Gang and Wang Xiaolu have long been committed to quantifying the degree of marketization in the region. They divide the market-oriented total index, which measures the degree of marketization in the region, into five indicators, namely, “the relationship between the government and the market” and “the development of non-state-owned economy, the degree of development of the product market, the degree of development of the factor market, the development of market intermediaries and the legal environment of the market. Among the five indicators, the “government-market relationship” measures the degree of government participation, “the development of non-state-owned economy”, “the degree of development of product markets” and “the degree of development of factor markets” measure the degree of market competition. “The development of market intermediaries and the legal environment of the market” measure the degree of rule of law. Therefore, this paper will analyze the impact of regional marketization on the relationship between internal control quality and making quick money from three aspects: government participation level, market competition degree and legalization degree.
The high level of government involvement means that the government has a greater intervention in the Enterprise. Corporate performance affects local GDP and fiscal revenue, while local GDP and fiscal revenue are linked to the promotion of local government officials [
Low market competition means that the market’s price mechanism is not mature, local protectionism is strong, regional finance is backward, and manpower supply is insufficient. The low degree of rule of law means that the maturity of law firms, accounting firms and other intermediaries is low, and administrative law enforcement intensity is low too. When the degree of market competition and the degree of rule of law are low, it may cause Enterprises to be free to compete in the region, and information on the external business environment is difficult to obtain [
Based on the above analysis, this paper proposes that under the same conditions, the market environment in the region where the Enterprise is located will affect the relationship between internal control quality and making quick money. When the degree of marketization is low, there is no significant correlation between internal control quality and making quick money. When the degree of marketization is high, there is a significant negative correlation between internal control quality and making quick money, and the higher the degree of marketization, the greater the inhibition of high internal control on making quick money.
The definition of each variable in this paper is shown in
1) Internal control quality. This paper draws on the research of Fang Hongxing and Jin Yuna (2013), which is measured by “whether a listed company has one of the conditions for characterizing low-quality internal control (is 0, no 1) [
2) The degree of regional marketization. This paper uses the market-oriented total index of China’s sub-provins issued by Fan Gang and Wang Xiaolu (2011, 2017) to measure the degree of regional marketization [
This paper constructs the following regression model to test the hypothesis. In the formula, i represents the Enterprise, and t represents the year. The definition of each variable is shown in
MQM it = β 0 + β 1 ICQ it + β 2 RMI it + β 3 ICQ it × RMI it + β 4 State it + β 5 Lnasset it + β 6 Roe it + β 7 Leverage it + β 8 Revgrowth it + Year + Industry + ε
We expect that in the regression results, the ICQ coefficient will not be significantly negative, should be not significantly negative or not significant, and the ICQ × RMI coefficient is significantly negative.
The descriptive statistics of the main variables of the full sample and the grouped samples are shown in
In terms of internal control quality, the average internal control quality (ICQ) is 0.7860, indicating that the number of companies with high quality internal control accounts for 78.60%, and the quality of internal control of most listed companies is high.
In terms of making quick money, the average value of MQM is 0.0141, indicating that the average financial and real estate industry income of each listed company accounted for 1.41% of total operating income, which is similar to the descriptive statistics of Wang Hongjian et al. (2016) [
In terms of regional marketization, the average marketization index (RMI) of the region where the enterprise is located is 7.4266. The national average marketization index in 2014 is 6.56, which is lower than the average of the sample, indicating that the majority of listed companies are highly marketized in Eastern and central regions.
The correlation coefficients of the main variables are shown in
| Type | Name | Symbol | Variable definition |
|---|---|---|---|
| Explained variable | Make quick money | MQM | Revenue share of financial and real estate industry in operating income |
| Explanatory variables | Internal control quality | ICQ | The internal control quality is 1 for high quality and 0 for low quality |
| Regional marketization | RMI | The total marketization index corresponding to the province where the Enterprise is located (published by Fan Gang and Wang Xiaolu, etc.) | |
| Control variable | Nature of property | State | If the Enterprise is a state-owned holding company, it is 1, otherwise it is 0 |
| Business scale | Lnasset | Natural logarithm of total assets at the end of the period | |
| Profitability | Roe | Return on net assets, i.e., net profit/average total assets | |
| Capital structure | Leverage | Asset-liability ratio, i.e., total liabilities/total assets | |
| Growth | Revgrowth | Operating income growth rate, that is, (current operating income-previous operating income)/previous operating income | |
| Year | Year | dummy variable | |
| Industry | Industry | dummy variable |
| Classification | ICQ Assignment | Judging criteria |
|---|---|---|
| Low quality | 0 | If it has one of the following circumstances: financial restatement in the current year, irregularity occurred in the current year, loss in the current year, internal control audit report issued this year with non-standard opinions, and financial report audit report issued this year with non-standard opinions. |
| High quality | 1 | There are no situations listed in low quality internal controls. |
| Mean | Median Standard | Deviation | Maximum Value | Minimum Value | |
|---|---|---|---|---|---|
| MQM | 0.0141 | 0.0000 | 0.0673 | 0.4964 | 0.0000 |
| ICQ | 0.7860 | 1.0000 | 0.4102 | 1.0000 | 0.0000 |
| RMI | 7.4266 | 7.5500 | 1.8571 | 11.7100 | −0.3000 |
| State | 0.4379 | 0.0000 | 0.4961 | 1.0000 | 0.0000 |
| Lnasset | 21.8947 | 21.7700 | 1.1614 | 25.2200 | 19.5000 |
| Roe | 0.0759 | 0.0800 | 0.1268 | 0.4200 | −0.5800 |
| Leverage | 0.4545 | 0.4564 | 0.2066 | 0.9043 | 0.0517 |
| Revgrowth | 0.1361 | 0.1014 | 0.2964 | 1.5083 | −0.4952 |
| MQM | ICQ | RMI | State | Lnasset | Roe | Leverage | Revgrowth | |
|---|---|---|---|---|---|---|---|---|
| MQM | 1.000 | |||||||
| ICQ | −0.026*** | 1.000 | ||||||
| RMI | 0.011 | 0.112*** | 1.000 | |||||
| State | −0.017* | −0.071*** | −0.172*** | 1.000 | ||||
| Lnasset | −0.025*** | 0.023*** | 0.002 | 0.315*** | 1.000 | |||
| Roe | 0.036*** | 0.403*** | 0.074*** | −0.050*** | 0.090*** | 1.000 | ||
| Leverage | 0.103*** | −0.220*** | −0.110*** | 0.251*** | 0.389*** | −0.196*** | 1.000 | |
| Revgrowth | 0.052*** | 0.130*** | −0.004 | −0.069*** | 0.016* | 0.283*** | 0.016* | 1.000 |
The test results of the degree of regional marketization on the relationship between internal control quality and quick money relationship are shown in
The coefficient of internal control quality (ICQ) is not significant, indicating that internal control cannot suppress the rapid money when the degree of marketization is low. The coefficient of ICQ is positive, indicating that internal control is not good when the degree of marketization is low. It is a restraining effect on making quick money, but it makes it easier. The intersection of the internal control quality and the degree of marketization (ICQ × RMI) coefficients are significantly negative (−0.002**) at the 5% significance level, which is opposite and significant to the ICQ coefficient, indicating when the degree of marketization is high, the higher the degree of marketization, the more the internal control can suppress the quick money. Therefore, the assumption is verified.
In the paper, when the hypothesis is put forward, the five aspects of the index under the marketization index are classified into three categories according to the content they reflect. The paper analyzes how the degree of marketization of these three aspects affects on the relationship between quality of internal control and making quick money. Since the paper uses the market-oriented total index when testing the hypothesis, whether the degree of marketization in five aspects will affect this relationship is still unknown.
Therefore, this paper further uses the five aspects of the marketization index to measure the degree of marketization separately, to explore the impact of different aspects of the market environment on the quality of internal control and the relationship between making money. The specific approach is: first, the relationship between government and the market (GI), the development of non-state-owned economy (NEDI), the degree of development of the product market (PMI), and the degree of development of the factor market (EMI) are substituted into the RMI variables in the model, and then the samples are returned.
The results of the regression are shown in
| Constant | 0.101*** |
|---|---|
| (0.000) | |
| ICQ | 0.008 |
| (0.141) | |
| RMI | 0.002*** |
| (0.001) | |
| ICQ × RMI | −0.002** |
| (0.012) | |
| State | −0.005*** |
| (0.000) | |
| Lnasset | −0.005*** |
| (0.000) | |
| Roe | 0.032*** |
| (0.000) | |
| Leverage | 0.041*** |
| (0.000) | |
| Revgrowth | 0.008*** |
| (0.000) | |
| Year | control |
| Industry | control |
| N | 12755 |
| Cox and Snell R² | |
| −2 log likehood | |
| Adj. R² | 0.039 |
| F Value | 21.913 |
| GI | NEDI | PMI | EMI | MAI | |
|---|---|---|---|---|---|
| Constant | 0.097*** | 0.108*** | 0.093*** | 0.114*** | 0.112*** |
| (0.000) | (0.000) | (0.000) | (0.000) | (0.000) | |
| ICQ | 0.012** | 0.011** | 0.030*** | −0.006 | −0.001 |
| (0.030) | (0.044) | (0.001) | (0.156) | (0.667) | |
| RMIn | 0.003*** | 0.001** | 0.003*** | 0.001* | 0.001*** |
| (0.000) | (0.023) | (0.002) | (0.093) | (0.007) | |
| ICQ × RMIn | −0.003*** | −0.002*** | −0.004*** | 0.000 | −0.001* |
| (0.001) | (0.002) | (0.000) | (0.893) | (0.082) | |
| State | −0.005*** | −0.005*** | −0.005*** | −0.005*** | −0.005*** |
| (0.000) | (0.000) | (0.000) | (0.000) | (0.001) | |
| Lnasset | −0.005*** | −0.005*** | −0.005*** | −0.005*** | −0.005*** |
| (0.000) | (0.000) | (0.000) | (0.000) | (0.000) | |
| Roe | 0.033*** | 0.033*** | 0.033*** | 0.033*** | 0.032*** |
| (0.000) | (0.000) | (0.000) | (0.000) | (0.000) | |
| Leverage | 0.040*** | 0.040*** | 0.040*** | 0.041*** | 0.041*** |
| (0.000) | (0.000) | (0.000) | (0.000) | (0.000) | |
| Revgrowth | 0.008*** | 0.007*** | 0.007*** | 0.008*** | 0.008*** |
| (0.000) | (0.001) | (0.001) | (0.000) | (0.000) | |
| Year | control | ||||
| Industry | |||||
| N | 12755 | 12755 | 12755 | 12755 | 12755 |
| Cox and Snell R² | |||||
| −2 log likehood | |||||
| Adj. R² | 0.040 | 0.039 | 0.040 | 0.039 | 0.039 |
| F Value | 22.079 | 21.809 | 21.990 | 21.924 | 21.763 |
1) The relationship between the government and the market, the development of the non-state-owned economy, and the degree of development of the product market can each affect the relationship between the quality of internal control and the quick money. When the degree of marketization of these three aspects is low, high-quality internal control promotes quick money; when the degree of marketization is high, the higher the degree of marketization, the more internal control can suppress the quick money;
2) The degree of development of the factor market does not affect the relationship between the quality of internal control and the quick money;
3) The development of market intermediaries and the legal environment of the market affect the relationship between the quality of internal control and the earning of fast money. When the degree of marketization is low, high-quality internal control cannot significantly inhibit the making of fast money; when the degree of marketization is high, the higher the degree of marketization, the more internal control can suppress the rapid money.
It can be seen that the relationship between the government and the market, the development of the non-state-owned economy, the development of the product market, the development of the market intermediary organization and the legal environment of the market respectively affect the relationship between the quality of internal control and the quick money. And the results of the impact are consistent with the results of the five aspects.
This paper takes the 2007-2016 Shanghai-Shenzhen A-share main board listed company as a research sample, and examines the difference in the impact of internal control quality on the quick money in different regions. The study found:
1) The suppression of fast money by high-quality internal control is affected by the degree of marketization in the region. If the Enterprise is in a region with low marketization, its internal control quality is not related to making quick money. On the contrary, the internal control of Enterprises with high degree of marketization has played a good inhibitory role.
2) In different aspects of the regional market environment, the relationship between the government and the market, the development of the non-state economy, the development level of the product market, the development of the market intermediary organization and the legal environment of the market will affect the internal control quality of the Enterprise’s suppression on making quick money, and the results of the impact are consistent with the results of the five aspects. The degree of development of the factor market does not affect.
The author declares no conflicts of interest regarding the publication of this paper.
Wu, Y.N. (2018) Research on the Influence of Regional Marketization Degree on the Effect That Internal Control Suppresses Enterprises to Make Quick Money. American Journal of Industrial and Business Management, 8, 2334-2343. https://doi.org/10.4236/ajibm.2018.812156