Social trust and internal control extensiveness: Evidence from China

Liu, Baohua; Huang, Wan Yu; Chan, Kam C.; Chen, Tao

doi:10.1016/j.jaccpubpol.2022.106940

Cited by 18 publications

(29 citation statements)

References 49 publications

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“…Ownership concentration is measured as the percentage of shareholdings held by the largest investor ( TOP1 ). We use the internal control quality index ( IC ) developed by DIB Company to assess the internal control quality of Chinese firms (Chen et al , 2019; Liu et al , 2022). [4] To examine the effects of internal governance mechanisms, we include TOP1 and IC as well as their interactive terms with INSURANCE in Models (3) and (4), respectively.…”

Section: Resultsmentioning

confidence: 99%

The impact of directors’ and officers’ liability insurance on firm’s investment efficiency: evidence from China

Li¹,

Sun

et al. 2023

PAR

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Purpose The purpose of this paper is to examine the impact of directors’ and officers’ liability insurance (D&O insurance hereafter) on corporate governance and firm performance, with a specific focus on investment efficiency. Design/methodology/approach Using a sample of Chinese A-share listed firms from the period 2007 to 2020, this study uses Ordinary Least Squares regressions to investigate the research questions, as well as moderating and mediating effects. Additionally, alternative measures of investment efficiency are used, and the Heckman two-stage model and propensity score matching model are used to demonstrate the consistency of the findings and to mitigate the risk of endogeneity. Findings The findings of this study suggest that purchasing D&O insurance has a detrimental impact on corporate investment efficiency, particularly in the context of over-investment activities; robust internal governance mechanisms, exemplified by a higher shareholding ratio of the top shareholder and enhanced internal control quality, alleviate this negative effect; and financing constraints act as a mediating factor in the association between D&O insurance and investment efficiency. Originality/value Corporate investment efficiency is of significant importance for both national macroeconomic growth and micro-enterprise development. Notably, the prevalence of D&O insurance among Chinese firms is progressively increasing, thus exerting a growing influence. This study contributes to the existing literature on D&O insurance and corporate investment efficiency, providing valuable insights into the economic impact of D&O insurance on Chinese firms. The empirical evidence presented herein facilitates future reforms and adjustments.

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Section: Resultsmentioning

confidence: 99%

The impact of directors’ and officers’ liability insurance on firm’s investment efficiency: evidence from China

Li¹,

Sun

et al. 2023

PAR

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show abstract

“…Research Data Services (CNRDS), a comprehensive data platform widely used in China's economic, financial, and business studies in recent years (Sun et al, 2021;Wang et al, 2021). In addition, we use Liu et al, 2022). The other variable settings for the model are consistent with the main model.…”

Section: Influence Mechanism Testmentioning

confidence: 99%

“…In addition, we use the internal control quality ( Internal ) to define the internal control, which are measured by the internal control disclosure index from DIBO Internal Control and Risk Management Database. This database is the first professional and authoritative database of internal control information in China and has become a data source for studying the internal control problems of listed enterprises in China (Chan et al, 2021; Liu et al, 2022). The other variable settings for the model are consistent with the main model.…”

Section: Further Extensionsmentioning

confidence: 99%

Invisible governance: Cognitive ability and corporate social responsibility

Zhuang

Lin

2023

Manage Decis Econ

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Our research examines the effect of cognitive ability on corporate social responsibility (CSR) based on the data of listed companies in China's A‐share market. As an informal system, cognitive ability plays an important governance role in CSR performance. The channel analysis shows that cognitive ability stimulates CSR through three mechanisms: improving external supervision, strengthening internal control, and promoting external supervision to boost internal control. In addition, the effect of cognitive ability on CSR performance is heterogeneous according to the different ownership of enterprises. Furthermore, we find that cognitive ability has an important supervisory effect on the CSR of state‐owned enterprises (SOEs) with greater financing constraints. Mitigating the financing constraints and the operating risks of non‐SOEs can better improve governance effect of cognitive ability on them, reducing their practices of CSR motivated by rent‐seeking.

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“…Due to the proprietary nature of the DIB business, we do not have exact information on how it scores explicitly an item. Nonetheless, Chan et al (2021) and Liu et al (2022) illustrate that the DIB database significantly helps investigate corporate innovation and how social trust shapes a firm's ICE. 2 Unlike most studies on internal controls that use a dummy variable to indicate a firm's internal control weakness (e.g., Beneish et al, 2008), the internal control data from the DIB are continuous.…”

Section: Icementioning

confidence: 99%

“…This is conceptually better and more direct than other studies that use the ratio of Catholics to Protestants (Kumar et al, 2011) as a proxy for gambling culture. Additionally, by examining the ICE of Chinese firms, we can compare our results with social trust studies in Liu et al (2022) and evaluate the possible differential effects of different cultural factors on ICE.…”

Section: Introductionmentioning

confidence: 99%

Gambling culture and internal control extensiveness

Tan,

Gao,

Chan

2023

Financ Manag Account

Self Cite

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While cultural traits in a firm's location impact corporate operation, the role of local cultures on a firm's internal control effectiveness (ICE) remains unclear. Using data from a sample of Chinese firms from 2009 to 2019, we examine how the gambling culture in Chinese provinces where firms are located impacts the firms' ICE. We use per capita lottery sales of the provinces to proxy for gambling culture in China and find that firms raise their ICE in environments with strong gambling cultures. The results are robust to five components of ICE (control environment, risk assessment, control activity, information and communication, and internal monitoring), alternative metrics of gambling metrics, and after accounting for endogeneity. A mediating analysis also shows that firms in regions with a strong gambling culture engage in risky activities, which increases their ICE. Additional analyses suggest that the effect is more salient for firms with poor internal corporate governance, firms located in poor legal environments, firms with poor audit quality, or firms with more local external stakeholders, echoing that ICE and monitoring are partial substitutes.

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Social trust and internal control extensiveness: Evidence from China

Cited by 18 publications

References 49 publications

The impact of directors’ and officers’ liability insurance on firm’s investment efficiency: evidence from China

The impact of directors’ and officers’ liability insurance on firm’s investment efficiency: evidence from China

Invisible governance: Cognitive ability and corporate social responsibility

Gambling culture and internal control extensiveness

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