Modern Economy, 2011, 2, 893-900
doi:10.4236/me.2011.25100 Published Online November 2011 (http://www.SciRP.org/journal/me)
893
Analysis of the Relationship between Listed Companies’
Earnings Quality and Internal Control
Information Disclosure*
Jianfei Leng, Lu Li
School of Business, Hohai University, Nanjing, China
Received September 11, 2011; revised October 10, 2011; accepted October 22, 2011
Abstract
This article examines the relationship of earnings quality and internal control disclosure information in the
sample of 1273 nonfinancial firms in shanghai and Shenzhen Stock Exchange in 2010. Using multiple re-
gression model, we launch an empirical analysis on the relationship between earnings quality and internal
control disclosure information. We find a positive relation between earnings quality and internal control dis-
closure information. The better the earnings quality is, the higher level of the internal control disclosure in-
formation will be. This provides a theoretical support to perfect our system of internal control disclosure of
information, and to reduce the occurrence of financial fraud.
Keywords: Earnings Quality, Internal Control, Disclosure of Information
1. Introduction
The cases of financial fraud lead to incalculable losses in
these years, which are related to firm’s weak system of
internal control. Now, both domestic and foreign have
issued a series of legal norms. For example, Sarbanes-
Oxley (SOX) Act force listed Companies to disclose
their internal control information, including internal con-
trol deficiencies and internal self-assessment report and
external auditor’s audit opinion. We formulate two im-
portant files: “Shanghai Stock Exchange listed compa-
nies internal control guidelines” and “Shenzhen Stock
Exchange listed companies internal control guidelines”.
These files require companies to disclose internal control
self-assessment report and comments of external audi-
tor’s audit, which greatly improve company’s effective-
ness of internal control and quality of financial informa-
tion. Accounting earnings is the score and one of the
most important elements in all of the accounting infor-
mation, which mainly refers to the company’s ability of
forecasting future net cash flow. Higher earnings quality
is the key to the effective function of the market and the
insurance of the company’s future cash flow. The better
quality of company’s earnings inclined to disclose more
internal control information and to get more outside in-
vestment. Therefore, earnings quality is one of the most
important factors to affect internal control information
disclosure. In this article, with the analysis of multiple
regressions, we examine the relationship of earnings
quality and internal control disclosure of information in
the sample of 1273 nonfinancial firms in shanghai and
Shenzhen Stock Exchange in 2010.
2. Prior Research on Internal Control
Information Disclosure
Listed companies’ internal control information disclosure
is mostly voluntary before 2002, but few companies are
willing to do so. Since Sarbanes-Oxley (SOX) Act is
enforced, many listed companies are forced to disclose
their information of internal control, which providing
more material and information to scholars who study
listed companies’ internal control. Researches on internal
control information disclosure are mainly concentrated
on the following four aspects:
1) The current situation and solutions of internal con-
trol information disclosure.
*Fund: operation expenses for Hohai university’s basic scientific re-
search of central authorities “Research of internal control Information
Disclosure in Chinese listed companies” (2009B23514).
There are lots of researches on the current situation of
internal control information disclosure, Mc. Mullen, Ra-

J. F. LENG ET AL.
894
gahunandan and Rama [1] studied 4154 companies dur-
ing 1989-1993, suggesting that only 26.5% companies
are willing to disclose their internal control information,
and that only 10.5% provide their internal control report
among those companies with deficiencies on their finan-
cial reports. It shows that the proportion of companies
voluntarily disclosing their internal control information
is little, and that the companies with deficient financial
report are more unwilling to provide the internal control
self-assessment report. Hermanson [2] also did corre-
sponding empirical research on listed company’s internal
control information disclosure and got the same conclu-
sion. Minghui Li [3] and Dongmei Qin [4] made related
researches on the current situation of internal control
information disclosure. They believed that current listed
companies’ enthusiasm of disclosing internal control in-
formation is not strong, and much internal control infor-
mation was not substantial but formal. Minghui Li [3]
also drawn on the experiences of the United States in
internal control information disclosure, and provided a
series of suggestions and measures of improving internal
control information disclosure. Hua Li, Lina Chen [5],
Xiaofeng Dai and Jun Pan [6] analyzed the current situa-
tion of internal control information disclosure with in-
ternal control theories, and pointed out the problems and
put forward the corresponding solution. Xinhua Dai and
Qiang Zhang [7] mainly did the research on listed banks’
internal control information disclosure, finding that our
listed banks’ system of internal control information dis-
closure is not standardized and sufficient. They inter-
preted the corresponding requirements of the US internal
control information disclosure set by “Sarbanes-Oxley
Act”, suggesting China to promote the improvement of
listed banks’ internal control information step by step.
According to relevant provisions of internal control in-
formation disclosure required by “Shanghai Stock Ex-
change Guidelines” and “The Notice on Listed Compa-
nies’ Annual Report in 2006”, Youhong Yang and Wei
Wang [8] analyzed the internal control information dis-
closure of listed companies on Shanghai Stock Exchange
in 2006 with descriptive statistics, and found many
problems.
2) Impact factors of internal control information dis-
closure.
Bronson, carcello, Raghunandan [9] and Doyle, Ge,
McVay [10] suggested that there is a correlation between
corporate identity and internal control information dis-
closure. Company size, the proportion of institutional
investor holding, the number of audit committee and the
speed of earnings growth have impact on internal control
information disclosure. Many other experts did empirical
study on such question. Ge and McVay [11] used a sur-
vey method to analyze the sample, discovering that the
disclosure of material defects is related to the complexity
of the company but there is no direct correlation with
company size and profitability. Jifu Cai [12] made a
relevant empirical study of A-share listed companies to
find impact factors of listed companies’ internal control
information disclosure. The results showed that the com-
panies with a better operating performance and higher
reliability of financial report are more inclined to dis-
close its internal control information, and vice versa.
This indicates that the company’s operating performance
and reliability of financial report affect the listed compa-
nies’ internal control information disclosure. Adrew J.
Lcone [13] selected listed companies who disclosed ma-
terial defects of their internal control information in their
annual reports as samples to study the impact factors of
internal control information disclosure. The results show
that the complexity of corporate structures, the changes
in company structure and the inputs to internal control
are all the impact factors of internal control information
disclosure. Shaoqing Song and Yao Zhang [14] studied
A-share listed companies on Shanghai and Shenzhen
Stock Exchange from 2006 to 2007, finding that there is
a correlation between corporate governance characteris-
tics and internal control information disclosure. Audit
committee, annual statistics, company size and the place
of listing have a significant impact on internal control
information disclosure. Bin Wang and Huanhuan Liang
[15] studied 1884 listed companies on Shenzhen Stock
Exchange between 2001 and 2004. They made use of
their rating reports of information disclosure quality to
examine the inherent relationship between listed compa-
nies’ corporate governance characteristics, characteristics
of operating condition and information disclosure quality,
finding that corporate governance characteristics and
characteristics of operating condition have a certain im-
pact on internal control information disclosure.
3) The cost of internal control information disclosure.
The studies on the cost of internal control information
disclosure are not very much. J. Efrim, Boritz, Ping
Zhang [16] thought that the costs of disclosing internal
control information is enormous, and the management
did not believe that the benefits of internal control in-
formation disclosure would surpass the corresponding
costs. Maria [17] analyzed the sample which discloses
their internal control information in accordance with
SEC requirements, primarily study the relationship be-
tween the costs of disclosing internal control information
and the effectiveness of the internal control system. It is
found that the cost of disclosing deficiencies of internal
control information is far more than that of defect-free.
4) Correlation between internal control and earnings
quality.
There are many researches on the correlation between

895 J. F. LENG ET AL.
internal control and earnings quality. Doyle [11] studied
the relationship between internal control and earnings
quality, and found that internal control is a motivation of
earnings quality. The studies of Chan [18] and Goh and
Li [19] are similar. Chan [18] discovered that earnings
management of those who disclose the material defects
of internal control has a higher degree but the return on
investment is very low. Goh and Li’s [19] also found that
company’s earnings stability can be increased after im-
proving the defects of internal control. Lobo and Zhou
[20] made a comparison on companies’ discretionary
accruals between before implementing “Sarbanes-Oxley
Act” and after implementing it, finding that companies’
discretionary accruals decreased a lot after the imple-
mentation of “Sarbanes-Oxley Act”. Doyle, Ge and
Mcvay [10] divided the internal control defects into two
aspects: corporate level and account level, finding that
internal control defects on corporate level is influential to
earnings quality, but there is no correlation between in-
ternal control defects on account level and earnings qual-
ity. Guoqing Zhang [21] selected non-financial A-share
listed companies in 2007 as a research object to study the
internal control quality on earnings quality. The results
have shown that there is no close link between high qual-
ity internal control and earnings quality, but company’s
characteristics and corporate governance factors may
affect internal control quality and earnings quality sys-
tematically. Chunsheng Fang et al. [22] used question-
naire survey to examine the relationship between internal
control system and financial reporting quality, finding
that financial reporting quality improved after imple-
mentation of internal control system. Jun Zhang and
Junzhi Wang [23] selected listed companies on Shanghai
Stock Exchange in 2007 as sample, and used adjusted
Jones model to calculate discretionary accruals and
found that discretionary accruals significantly reduced
after the review of internal control. Shengwen Xie and
Wenhai Lai [24] selected A-share listed companies on
Shanghai Stock Exchange in 2007 and 2008 as samples.
They analyzed the relationship between internal control
deficiencies and earnings quality by using a paired study,
and found that listed companies’ internal control infor-
mation disclosure had an effect on earnings quality.
Based on the above studies, we can see that internal
control gets more attention after the promulgation of
“Sarbanes-Oxley Act”. Current researches centralize on
the defects of existing laws and regulations, the current
situations of listed companies’ internal control informa-
tion disclosure, the relationship between listed compa-
nies’ internal control information disclosure and their
operating conditions, financial report quality and earn-
ings quality. Among the current studies, most have fo-
cused on descriptive statistics and the relationship be-
tween internal control quality and earnings quality, while
there is no study use earnings quality as explanatory
variable to reflect its effect on internal control informa-
tion disclosure. Therefore, this article uses earnings qual-
ity as main explanatory variable and disclosure of inter-
nal control as the dependent variable to do empirical
study, which compensate for the lack of current research
to some extent.
3. Method
3.1. Hypothesis
Hypothesis: the better the quality of earnings is, the
higher the level of internal control information disclosure
will be.
According to agency theory and signaling theory,
corporate trustee has obligation to report relevant infor-
mation to the corporate capital owners, which give help
to the operation of business. In the process of reporting,
corresponding information is to pass the corporate rele-
vant signal to the capital market. The signal can make the
operator affect the flow of resources in capital market in
a certain extent to improve the enterprise’s interests.
There is the mutually reinforcing relationship between
internal control information disclosure and the quality of
earnings. A company that can fully disclose its informa-
tion of internal control means that its managers have a
good description of ethics. Meanwhile, a company that
can take the initiative to show its internal control infor-
mation in detail indicates that its company has a higher
self-confidence, which will attract more capital market
resources, increase its cash flow, enhance the quality of
earnings, and improve management capabilities. Con-
versely, companies with good earnings quality will
choose to voluntarily disclose their information of inter-
nal control in detail. They can distinguish themselves to
the companies with inferior earnings quality and get
more favor from investors.
3.2. Variable Selection and Definitions
3.2.1. Depe ndent Variable
In this paper, we use internal control index to substitute
internal control information disclosure (ICD) to test the
full of detail of internal control information disclosure.
The selection criteria of internal control information dis-
closure item are “listed company’s internal control guide-
lines on Shanghai Stock Exchange” and “listed com-
pany’s internal control guidelines on Shanghai Stock
Exchange”. The eight items of information disclosure are:
internal environment, risk assessment, control activists,
information and communication, internal oversight, in-

J. F. LENG ET AL.
896
Model.
come and the last year’s main business income in com-
pany i.
ternal control deficiencies, internal evaluation and exter-
nal evaluation. The eight items cover almost all major
information that stakeholders needed and reflect the real
situation of internal control by a large margin, which can
accurately reflect the level of companies’ internal control
information disclosure. The specific method of operation
is scoring method, that is, make scores to the eight items.
Disclose one item gets one point, otherwise gets zero,
then the sum of the eight items is the internal control
information disclosure index.
,it
REC

: the margin of the current accounts receiv-
able balance and the last year’s accounts receivable bal-
ance in company i.
,it
: residuals, controllable profits is its absolute value.
PPE
e
: the current total fixed assets of company i.
,it
1

, 2

, 3

: general parameters, can be estimated by
basic Jones model with the year’s data:



, ,1 1,12, ,1
3,,1
1
it ititit it
itit
TA AAREVA
PPE A







3.2.2. Independent Variables
The company’s earnings quality is the company’s ac-
counting earnings quality. Acruals quality is widely used
as a proxy variable of earnings quality. Healy [25] di-
vided accruals into discretionary accruals and
non-discretionary accruals. Many scholars believe that
the level of discretionary accruals could measure the
level of earnings quality. This article makes discretionary
accruals as an alternative to earnings quality to be esti-
mated in the modified cross-section Jones
3.2.3. Cont rol Variables



,,11 ,1
2, ,,
3,,1,
1
it itit
itit it
it itit
TA AA
REVREC A
PPE Ae








 


1


,
In addition to the study of the earnings quality on inter-
nal control information disclosure, there is a lot of re-
searches about the impact factors of internal control in-
formation disclosure. Disclosure of internal control in-
formation can’t be completely attributed to earnings
quality. Many other factors should be taken into consid-
eration as well. Bronson, Carcello, Raghunandan [9] and
Doyle, Ge, McVay [10] thought that company’s charac-
teristics are related to internal control information dis-
closure. Company size, the stake holding proportion of
institutional investors, the number of attending meeting
of audit committee and the income growth all affect the
internal control information disclosure. Shaoqing Song
and Yao Zhang [14] also discovered that there is correla-
tion between corporate governance characteristics and
internal control information disclosure. Therefore, this
article selects controlling variable from the basic charac-
teristics of company, company performance and corpo-
rate governance characteristics. The selected control va-
riables are classified in Table 1.
,it
TA : the current total accruals of company i,
,,it itit
TARET CFO
( means the current net profits of company i,
,it means the current cash flow from operating ac-
tivities of company i).
,it
RET
CFO
,1it
A
: the total assets of company i at the end of last
year.
,it
REV: the margin of the current main business in-
Table 1. Variables and their measurement method.
Nature of Variables Name of Variables Measurement of Variables Symbols of Variables
Dependent Variables Internal Control Information DisclosureScore each item of internal control information disclosure,
and then sum them ICD
Independent Variables Earnings Quality Calculate operational accruals by using Modified Jones
Model EQ
Return on Equity
Net profits/[(Balance of Shareholders’ Equity at the End of
Period + Balance of Shareholders’ Equity at the End of
Period/2] × 100%
ROE
The debt-to-asset ratio Total Liabilities/Total Assets × 100% DTA
Earnings Per Share Net Income after Tax/All Ordinary Shares EPS
Board Size Number of Board Directors BS
The Proportion of Independent DirectorsNumber of Independent Director/Total Number of Board
Directors ID
Ownership Concentration Proportion of the top five shareholders OC
Controlling Variables
Internal Audit Agency Dummy Variable, Establishment = 1; 0 Otherwise IAC

897 J. F. LENG ET AL.
1) Return on Equity (ROE):
ROE is rate of return on common stockholders’ equity.
ROE reflects the income of company’s net assets and the
company’s profitability. The level of ROE reflects the
level of strength of corporate profitability. Jifu Cai [12]
believed that listed companies with good operating per-
formance tend to disclose their internal control informa-
tion.
2) The Debt-to-Asset Ratio (DTA).
DTA is the reflection of the comprehensive ability.
The level of the DTA reflects the strength of company’s
predictive power. Hossain [26] studied the impact factors
of internal control information disclosure twice, He
found that debt ratio were positively correlated with the
level of disclosure. Thus this article chooses DTA as one
of control variables.
3) Earnings per Share (EPS).
It is an important indicator of measuring corporation’s
operating performance. Lang and Lundholm’s [27] study
showed that the better the company’s operating per-
formance is, the higher level of internal control informa-
tion disclosure will be. Thus this article chooses EPS as
one of control variables.
4) Board Size (BS).
BD is an important feature of corporate governance.
The size of board may also affect the disclosure of inter-
nal control information. Yermack [28] used the data of
500 listed companies in US published on “Forbes” ma-
gazine between 1981 and 1991. They made a conclusion
that the larger the BD is, the worse the corporate per-
formance will be, so it can’t play a good role in the dis-
closure of information outside.
5) The Proportion of Independent Directors (ID).
Independent directors are always independent and
generally the experts in economic, legal, accounting and
others, they can express their authoritative opinions on
the information listed company should disclosure by
standing on the position of investors. They are more
likely to affect decision-making of information disclo-
sure and make them inclined to disclose internal control
information.
6) Ownership Concentration (OC).
Ownership concentration plays an important role in
internal control information disclosure. Wei Zuo and Ye
Qiao [29] believed that the higher the ownership concen-
tration is, the greater the risk of major shareholders
stealing the interests of minority shareholders will be.
Then companies tend to disclose more detailed informa-
tion to make users understand more about corporate
business situations and to protect the interests of minor-
ity shareholders. In addition, Hossain [26] found that
there is a positive relationship between ownership con-
centration and the level of the disclosure of internal con-
trol information. Thus the ownership concentration should
be one of controlling variables.
7) Internal Audit Agency (IAC).
In general, the companies established IAC may attach
more importance to the internal control information dis-
closure and reduce various types of risk.
3.3. Sample Selection
This article selects 1689 listed companies of A-share
market main board in Shanghai and Shenzhen Stock Ex-
change in 2010, to ensure the validity of data, removing
39 financial and insurance companies and 221 companies
listed in the year and 61 companies of delisting and sus-
pension of listing and 95 companies of missing data.
The indicators data of sample are from Shanghai Stock
Exchange (http://www.sse.com.cn), Shenzhen Stock Ex-
change (http://www.szse.cn), Huge influx of information
network (http://www.cninfo.com) and Ruisi Database
(http://www.resset.cn). Data processing using statistic
software spss 16.0.
3.4. Model Set
This article chooses multiple linear regression models:
01 2345
67 8
I
CDEQROEDTA EPSBS
IDOCIAC e
 
 
 
 
0

is constant term, (1,2,3,,8)
ii

 is model re-
gression coefficients, is residuals. e
4. Empirical Analysis
4.1. Internal Control Information Disclosure
Index
This article uses internal control information disclosure
index to measure the listed company’s internal control
information disclosure. According to “listed company’s
internal control guidelines on Shanghai Stock Exchange”
and “listed company’s internal control guidelines on
Shanghai Stock Exchange”, the selected eight items are
internal environment, risk assessment, control activists,
information and communication, internal oversight, in-
ternal control deficiencies, internal evaluation and exter-
nal evaluation. The results of information disclosure are
shown in Table 2.
The statistic results shows that there are 468 compa-
nies whose ICD equal and less than 4, accounting for
36.76%, and 805 listed companies equal and more than 5,
accounting for 63.24%. This indicates that most compa-
nies strictly perform internal control information disclo-

J. F. LENG ET AL.
898
Table 2. Internal control information disclosure index.
ICD Number of Companies Proportion (%)
≤4 468 36.76
≥5 805 63.24
sure. But we can’t ignore the companies that can’t exe-
cute their internal control information disclosure.
4.2. Descriptive Statistical Analysis of Sample
Using regression model to analyze each variable, the
descriptive analysis results are shown in Table 3.
The descriptive statistics results shows that the maxi-
mum of ICD is 8, that is to say all eight items are dis-
closed; the minimum ICD is 1, it reflects that it didn’t
basically disclose the internal control information. The
mean is 5.12, which shows that the level of the internal
control information disclosure of listed companies is
good overall and basically observe the two “Guidelines”
requirements. The minimum and maximum value of
earnings quality has a large gap. The minimum is 0 and
the maximum is 12.62, and the mean is 0.4425. The
standard value is 0.85258, which shows that different
company differs greatly in earnings quality. ROE is from
–991.2% to 1295 %. DTA is from 1% to 699.85%. EPS
is from –2.48 to 5.35. These big gaps fully reflect the
difference in listed companies’ performance. In the as-
pect of corporate governance structure, the differences of
all companies are not small. The mean of BS is 12, and
the proportion of ID is about 34.689%. Different com-
pany has different OC, the top five shareholders of some
companies hold nearly 100% shares, which shows that
the OC of these companies are very high. The mean of
the proportion of top five shareholders is 49.17%, which
indicates that the OC of the whole listed companies is
very high. As for the establishment of IAC, some com-
panies established and some didn’t, which is in the line
with reality.
4.3. Correlation Analysis
The correlation analysis of variables and the significance
level are shown in Table 4.
ICD is negatively related to listed company’s EQ and
DTA at 1% significance level. The manageability of
profit has a negative correlation with the level of internal
control information disclosure, and that is to say there is
a positive relationship between earnings quality and the
level of internal control information disclosure. DTA is
negatively related to internal control information disclo-
sure, which is contrary to the findings of Hossain’s [26].
ICD is positively related to EPS, OC and the establish-
ment of IAC. This shows that the higher the company’s
EPS is, the better the company’s performance will be,
and then the company is more inclined to disclose its
internal control information. The major shareholders in
the company with high OC are more likely to steal the
interests of minority shareholders. The company is more
willing to disclose its internal control information in de-
tail. Furthermore, the establishment of IAC can reduce
the company’s risk, and this also reflects the attention to
internal control information disclosure. The ICD shows
Table 3. Descriptive statistical analysis of variables.
Variable’s NameMinimumMaximum Mean Standard Value
ICD 1.00 8.0 5.1170 1.84108
EQ 0.00 12.62 0.4425 0.85258
ROE –991.201295.00 9.0455 51.73995
EPS –2.48 5.35 0.3427 0.50329
DTA 1.00 699.85 56.8180 38.15713
BS 5.00 34.00 12.7007 3.90804
ID 6.67 80.00 33.6891 8.57244
OC 0.00 0.99 0.4917 0.16806
IAC 0.00 1.00 0.6237 0.48464
Table 4. Correlation analysis of variables.
ICD EQ ROE EPS DTA BS ID OC IAC
ICD 1.00
EQ –0.163** 1.00
ROE 0.047 –0.047 1.00
EPS 0.118** –0.220** 0.199** 1.00
DTA –0.095** 0.350** –0.040 –0.115** 1.00
BS 0.058* 0.037 0.023 0.051 0.019 1.00
ID 0.028 –0.047 –0.009 0.009 –0.012 –0.284** 1.00
OC 0.082** –0.193** 0.063* 0.230** –0.047 0.041 0.076** 1.00
IAC 0.674** –0.120** 0.007 0.028 –0.100** 0.011 0.001 0.009 1.00
This table presents the results for correlation analysis of variables. **, *Denote significance at the 1% and 5% levels, respectively.

899 J. F. LENG ET AL.
positive correlation with BS at the 5% significance level.
That is to say the company with larger BS is more likely
to disclose its internal control information. In addition,
ICD also shows positive correlation with ROE and ID. A
company with high ROE indicates its good corporate
earnings, and then the company will disclose its positive
information to attract more investors. Similarly, a com-
pany with high proportion of ID can better stand in the
position of investors to express its authoritative opinion
of the information that listed company should disclose.
They are more likely to affect the decision of information
disclosure. From the perspective of multi-collinearity,
collinearity doesn’t exist if the correlation coefficient is
not greater than 0.8, according to the study of Hossain,
Perera and Rahman [30]. From the results of the vari-
ables’ correlation analysis, we can see that the correla-
tion coefficient is essentially no more than 0.8. Therefore,
we can conclude that there doesn’t exist multi-collinear-
ity in the model of multiple regression.
4.4. Analysis of Multiple Regression
Regress the selected sample with per-set model, and the
results are shown in Table 5.
1) Test of Goodness of Fit
The model of goodness of fit is 0.472, which indicates
that the explanatory power of regression equation is
47.2%. That is to say, EQ, ROE, EPS, DTA, BS, ID, OC
and IAC can make 47.2% explanatory to the level of
internal control information disclosure. Thus this model
has a strong explanatory power.
2) Overall Significance Test of Model.
The F-value of this model is 142.893, with 0.000 ac-
companying probability less than 0.001. The value of Fα
(8, 1264) is significantly less than 142.884 at the signify-
cance level of 1%. This indicates that independent vari-
ables have linear regression relationship with dependent
variable. And the regression model is overall significant,
which means various factors within model significantly
affect internal control information disclosure.
Table 5. Internal control information disclosure on the im-
pact of earnings quality.
Name of Variable B T Sig.
Constant 2.671 10.320 0.000
EQ –0.135 –2.759 0.006
ROE 0.001 1.088 0.277
EPS 0.253 3.186 0.001
DTA 8.747E-5 0.083 0.934
BS 0.027 2.714 0.007
ID 0.008 1.641 0.101
OC 0.465 1.992 0.047
IAC 2.525 32.291 0.000
Adjusted R Square = 0.472 F Value = 142.884 Sig. = 0.000.
3) Significance Test of Single Regression Coefficient.
EQ is through significance test, indicating that EQ of
listed company has a significant impact on internal con-
trol information disclosure, which means that the better
the earnings quality is, the higher level of the internal
control disclosure of information will be. So this article’s
study hypothesis can be accepted. In the control variables,
EPS, BS, the proportion of ID, OC and the establishment
of IAC are all through significance test. All of them have
significant impact on internal control information dis-
closure, which consistent with a lot of previous re-
searches. ROE and DTA don’t pass the significance test.
It shows that the impact is no obvious.
5. Conclusions
The result of the above study shows that EQ of listed
company has significant impact on internal control in-
formation disclosure. Therefore, if listed companies want
to improve the level of their disclosure of internal control
information, they should enhance the supervision and
management of their EQ so that they can improve the
quality of their earnings. A company’s EQ is related to
not only the level of internal control information disclo-
sure but also the ability of predicting company’s future
business profitability and its cash flow. Therefore, listed
companies must strengthen the supervision and man-
agement to their managers, reduce the manipulation of
their profits, improve the quality of earnings, and in-
crease the level of internal control information disclosure.
Then the incidence of financial fraud must be reduced.
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