Internal Control Quality, Firm Risk and Cost of Equity Capital——Theoretical Analysis and Empirical Test
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Abstract This paper analyzes the mechanism of the effect of internal control quality on firm risk and cost of equity capital. Firstly the improvement of internal control quality directly reduces operation and management risk, which leads to the decrease of cost of equity capital. Secondly the improvement of accounting information quality determined by internal control quality reduces investors' estimation risk and restrains the agent conflict between management and investors, which also leads to the decrease of cost of equity capital. The empirical result shows that the firms with internal control deficiency have higher systematic risk and cost of equity capital, compared with the firms without internal control deficiency.
YAN Zhi-Gang. Internal Control Quality, Firm Risk and Cost of Equity Capital——Theoretical Analysis and Empirical Test. Economic Survey, 2012, 1(5): 0107.
2012, Vol. 1 
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