Research on the Impact of Internal Control Deficiencies on the Cost of Enterprise Debt Financing

Chenyue Deng

doi:10.63313/EPP.2005

Authors

Chenyue Deng School of Economics and Management, Southwest Petroleum University, Chengdu, Sichuan, China Author

DOI:

https://doi.org/10.63313/EPP.2005

Keywords:

Internal control deficiencies, Audit Quality, Cost of Debt Financing

Abstract

In recent years, the instability of the international economic situation and the turbulence of China's domestic and international environment have caused a downturn in the domestic financial market, making enterprises face the dilemma of "difficult financing" and "expensive financing". Therefore, based on the information asymmetry theory, principal-agent theory and signal transmission theory, this paper analyzes the impact of internal control defects on corporate debt financing costs with the sample of Shanghai and Shenzhen A-share listed companies from 2020 to 2024. The empirical study found that the reduction of internal control defects can effectively reduce the financing cost of enterprises. At the same time, from the perspective of audit quality and the nature of property rights, this paper analyzes their regulatory role in the relationship between internal control defects and corporate debt financing costs. The study found that, compared with enterprises with higher audit quality, the impact of internal control defects on corporate debt financing costs is more significant in enterprises with lower audit quality. And compared with state-owned enterprises, the impact of internal control defects on the cost of corporate debt financing is more significant in non-state-owned enterprises. This study helps enterprises realize the important role of the identification of internal control defects in the process of enterprise financing, and also enriches the theoretical research in related fields.

References

[1] Chen. Employee Stock Ownership Plans, internal controls and Debt Financing costs [D]. Shanghai Academy of Social Sciences,2023.

[2] Cheng Jianbo, Zheng Yuezhen, Yang Ruiping. Accounting Friends,2025,(16):102-110. Proactive Remediation of internal control deficiencies and High-Quality development of enterprises [J].

[3] Huang Jingru, Li Haoxuan. Does corporate digital transformation information disclosure reduce debt financing costs? -- A Dual Perspective Based on Signal Effect and Governance Effect [J]. Journal of Hubei University of Economics,2025,23(02):91-108.

[4] He, J., & Shan, Y. "Internal Control Weaknesses and Corporate Financing Costs: Evidence from Information Disclosure Quality". Journal of Corporate Finance,2021, 68(3).

[5] Qiao Rong. An Analysis of the Quality of Internal control and the Cost of Corporate Debt financing [J]. Chinese Township Enterprise Accounting,2023,(04):151-153.

[6] Jiang Yuanyuan, Wu Yan Yan. Audit Quality, Corporate reputation and High-Quality development of enterprises [J]. Science Decision,2023(8):98-112.

[7] Wang Enbing. Research on Features of Internal Audit and Quality of Internal Control [J]. China Science and Technology Investment,2024,(32):92-94.

[8] Sun Yongjun, Li Yushu, Liu Huiting. Information barriers, audit quality and related transactions of listed companies [J]. Friends of Accounting,2022(13):134-140.

[9] Yu Ke. Research on the Current Situation, Challenges and Optimization Path of Internal Control System Audit in State-owned Enterprises [J]. Tianjin Economy,2024,(08):42-44.

[10] Liu Wenhuan, Wang Yuxin. Social media attention, internal control and audit quality [J]. Business Accounting,2024(10):29-34.

[11] Liao Shiyun. A Brief Analysis of the Impact of Independence Audit Quality and Internal Control on Enterprise Financing Costs [J]. Administrative and Institutional Assets and Finance,2023,(17):123-125.

[12] Zhao Xiaotong. Research on Risk of Material Misstatement in Financing Trade of Listed Companies [D]. Shandong University of Finance and Economics,2025.DOI:10.27274/ d.nki.gsdjc.2025.000683.

[13] Li Li, Du Hongye. Administrative Approval Reform, Property Rights Nature and Debt Financing Cost [J]. Finance and Accounting Communication,2022(02):64-67.

[14] Yu Minggui, Zhong Huijie, Fan Rui. Privatization, Financing Constraint and Enterprise Innovation: Evidence from Chinese Industrial Enterprises [J]. Journal of Finance,2019,(04):75-91.

[15] Xiao Jun. The impact of Internal control and Audit Quality on Debt Financing costs [D]. Xi 'an Polytechnic University,2019.

[16] Qiu Feng, Liu Keke. Internal Control Quality and Debt Financing Cost: Based on Different Property Rights Natures [J]. Journal of Finance and Accounting,2018(08):35-38.