Asia-Pacific Journal of Business (아태비즈니스연구)

KNU The Institute of Management & Economy Research (강원대학교 경영경제연구소)
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Internal Control and Stock Price Informativeness about Future Earnings

내부통제와 미래이익에 대한 주가 정보성

  • Wanglan (Department of Accounting, Catholic University of Korea) ;
  • Hee-woo Park (Department of Accounting, Catholic University of Korea)
  • 왕람 (가톨릭대학교 대학원 회계학 전공) ;
  • 박희우 (가톨릭대학교 회계학과)
  • Received : 2023.11.30
  • Accepted : 2023.12.22
  • Published : 2023.12.31
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Abstract

Purpose - This study examines whether internal control has an effect on stock price informativeness about future earnings. High quality internal control provides continuous assurance for the quality of financial reports, and these future earnings-related information is accurately reflected in the current stock price. Design/methodology/approach - This study collected 12,862 data from 2006 to 2021 in China to make an empirical analysis using the future earnings response coefficient (FERC) and the multiple regression analysis were hired in order to analyze the data. Findings - We find that internal control strengthens the association between current returns and future earnings, indicating that more information about future earnings is reflected in current stock prices. This positive effect exists in both the main board market and the growth enterprise market of China's stock market, especially in the main board market after the implementation of the internal control policy. In addition, we find that the positive effect is weaker for firms that report internal control deficiencies or receives non unqualified internal control audit opinions. The results using earnings persistence yield similar findings, further supporting the results based on the FERC model. Research Implications or Originality - Our tests provide strong evidence that the quality of internal control affects FERC in China stock market.

Keywords

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