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Can non‐executive equity incentives reduce internal control ineffectiveness? Evidence from China

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  • Dunli Zhang
  • Ting Zhang
  • Guanghua Ma

Abstract

Using data from Chinese listed firms for the period 2012–2018, we provide new evidence that the intensity of non‐executive equity incentives can reduce the likelihood of internal control weaknesses and improve internal control effectiveness. We also find that internal control weaknesses are more likely to be remedied in firms that implement strong non‐executive equity incentive polices. Besides, we document novel results that employee equity incentives for non‐executives can optimise the internal environment, improve the internal supervision system, and thereby reduce the operational‐level weaknesses of a company’s internal controls.

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  • Dunli Zhang & Ting Zhang & Guanghua Ma, 2020. "Can non‐executive equity incentives reduce internal control ineffectiveness? Evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4467-4496, December.
    • Handle: RePEc:bla:acctfi:v:60:y:2020:i:5:p:4467-4496
    DOI: 10.1111/acfi.12653
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    References listed on IDEAS

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    1. Lu Tang & Shihan Zhang & Chenhui Ding & Jinyao Huan, 2022. "How Can the Sustainable Motivational Effect of Equity Incentives on Corporate Performance Be Exploited?—A Study Based on the Moderating Effect of Aspiration Level," Sustainability, MDPI, vol. 14(24), pages 1-17, December.
    2. Sami Adwan & Alaa Alhaj-Ismail & Ranko Jelic, 2022. "Non-executive employee ownership and financial reporting quality: evidence from Europe," Review of Quantitative Finance and Accounting, Springer, vol. 59(2), pages 793-823, August.
    3. Wei Wang & Ziyuan Sun & Weixing Zhu & Lin Ma & Yuting Dong & Xiao Sun & Fengzhi Wu, 2023. "How does multi‐agent govern corporate greenwashing? A stakeholder engagement perspective from “common” to “collaborative” governance," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 291-307, January.
    4. Jialin Yan & Haibo Hu & Yiruo Hu, 2024. "Does internal control improve enterprise environmental, social, and governance information disclosure? Evidence from China," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(5), pages 4980-4994, September.
    5. Jifan Hu & Yeyao Tang & Na Yin & Xiang Guo, 2024. "Institutional Investor Information Competition and Accounting Information Transparency: Implications for Financial Markets and Corporate Governance in China," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 9629-9666, June.

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