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The Effectiveness of Internal Control and Corporate Social Responsibility: Evidence from Chinese Capital Market

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  • Xiao Li

    (Economics and Management School of Wuhan University, Wuhan 430072, China)

  • Chunmei Zheng

    (Economics and Management School of Wuhan University, Wuhan 430072, China)

  • Gang Liu

    (Economics and Management School of Wuhan University, Wuhan 430072, China)

  • Muhammad Safdar Sial

    (Economics and Management School of Wuhan University, Wuhan 430072, China)

Abstract

From the perspective of the effectiveness of internal control, according to the Stakeholder Theory, Principal-Agent Theory and Reputation Theory, this paper analyzes comparatively the influences of internal control on the assumption of corporate social responsibility (SCPS) from the accrual basis, and the fulfillment of corporate social responsibility (CSRF) from the cash flow system respectively. Using a sample of 1767 firms listed in China between 2011 and 2016, we find that effective internal control has significantly promoted enterprises to assume social responsibilities. Meanwhile, effective internal control substantially improves the fulfillment of corporate social responsibility. This study overcomes the current situation that the two concepts of assumption and fulfillment of corporate social responsibility have not been distinguished in previous literature. We suggest that, in the economic transition period, the positive role of internal control in corporate governance should be promoted to protect the legitimate rights and interests of stakeholders; the adverse impact of the principal-agent relationship between shareholders and management on corporate governance should be avoided, building high-quality internal control; enterprises achieve steady and sustainable development process by the positive reputation value and robust external monitoring mechanism. This research is of practical importance to strengthen the subsequent construction of the internal control system and the long-term practice of corporate social responsibility.

Suggested Citation

  • Xiao Li & Chunmei Zheng & Gang Liu & Muhammad Safdar Sial, 2018. "The Effectiveness of Internal Control and Corporate Social Responsibility: Evidence from Chinese Capital Market," Sustainability, MDPI, vol. 10(11), pages 1-18, November.
  • Handle: RePEc:gam:jsusta:v:10:y:2018:i:11:p:4006-:d:179972
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    2. Imran Abbas Jadoon & Umara Noreen & Usman Ayub & Muhammad Tahir & Naima Shahzadi, 2021. "The Impact of Family Ownership on Quality and Disclosure of Internal Control in Pakistan," Sustainability, MDPI, vol. 13(16), pages 1-16, August.
    3. Duojiao Tan & Bilal & Simon Gao & Bushra Komal, 2020. "Impact of Carbon Emission Trading System Participation and Level of Internal Control on Quality of Carbon Emission Disclosures: Insights from Chinese State-Owned Electricity Companies," Sustainability, MDPI, vol. 12(5), pages 1-14, February.
    4. Bablu Kumar Dhar & Iman Harymawan & Sabrina Maria Sarkar, 2022. "Impact of corporate social responsibility on financial expert CEOs' turnover in heavily polluting companies in Bangladesh," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 29(3), pages 701-711, May.
    5. Murad Harasheh & Roberta Provasi, 2023. "A need for assurance: Do internal control systems integrate environmental, social, and governance factors?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(1), pages 384-401, January.
    6. Cheng Guping & Muhammad Safdar Sial & Peng Wan & Alina Badulescu & Daniel Badulescu & Talles Vianna Brugni, 2020. "Do Board Gender Diversity and Non-Executive Directors Affect CSR Reporting? Insight from Agency Theory Perspective," Sustainability, MDPI, vol. 12(20), pages 1-25, October.
    7. Xiao Li, 2020. "The effectiveness of internal control and innovation performance: An intermediary effect based on corporate social responsibility," PLOS ONE, Public Library of Science, vol. 15(6), pages 1-31, June.
    8. Jinhua Li & Fang Zhang & Shiwei Sun, 2019. "Building Consumer-Oriented CSR Differentiation Strategy," Sustainability, MDPI, vol. 11(3), pages 1-14, January.
    9. Peiqing Zhu & Jianbo Song, 2021. "The Role of Internal Control in Firms’ Coping with the Impact of the COVID-19 Pandemic: Evidence from China," Sustainability, MDPI, vol. 13(11), pages 1-22, June.
    10. Li, He & Lu, Juan & Guo, Feiyu, 2022. "High speed rail and corporate social responsibility performance: Analysis of intra-regional location and inter-regional spillover," Transport Policy, Elsevier, vol. 128(C), pages 65-75.

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