Internal Control Disclosure and Cost of Capital: An Empirical Study from Shanghai Stock Market in Fiscal Year of 2008

Abstract

This paper examined cost of capital reactions to management's evaluations of internal control and audit opinions on reports of internal control which based on samples of 2008 Chinese Shanghai Stock market, the results have shown that, those companies who disclosed positive internal control or clean audit opinions on reports of internal control will bear lower cost of capital, compared with the companies those who have shown negative actions on internal control disclosing or negative audit opinions on internal control reports after controlling for other independent variables. Overall, the result of our cross-sectional test is consistent with good internal control will be valued by capital market.