Abstract
Small and medium enterprises (SMEs) face more risks for sustainable growth due to a lack of resources than large firms in emerging economies. Hence, it is more likely for SMEs to look to risk management for survival in turbulent markets. As a tool of risk management, whether internal control indeed has contributions to the sustainable growth of SMEs, particularly conditional on multiple large shareholders, is empirically unexplored. Using a sample of SMEs listed in China, this study examines the relationship between internal control and sustainable growth, and assesses a moderating role of multiple large shareholders. The results show that effective internal control significantly promotes SMEs to achieve sustainable growth, and the effect is moderated by multiple large shareholders, suggesting that the role of internal control is more prominent in SMEs with multiple large shareholders. These results are robust to a battery of sensitivity tests. This study extends the literature by providing empirical evidence on the role of internal control in SMEs’ sustainable growth.
Highlights
Increasing uncertainty and competition in the process of internationalization attaches much more difficulties and risks to small and medium enterprises (SMEs) for sustainable growth than large firms in emerging economies
The findings show that effective internal control significantly promotes SMEs to achieve sustainable growth, and the effect is moderated by multiple large shareholders, suggesting that the role of internal control is more prominent in SMEs with multiple large shareholders
This study aims to examine the governance role of internal control in SMEs’ sustainable growth in the developing economy of China with the moderation effect of multiple large shareholders
Summary
Increasing uncertainty and competition in the process of internationalization attaches much more difficulties and risks to small and medium enterprises (SMEs) for sustainable growth than large firms in emerging economies. As the Committee of Sponsoring Organization of the Treadway Commission (COSO 2017) emphasizes, internal control is a framework of enterprise risk management, and integrates with strategy and performance for sustainable growth. More studies are being called for by COSO (2017) to explore the role of internal control in promoting sustainable growth around the world, in developing economies. To respond to the claims in academia and practice, the purpose of this study is to examine the role of internal control in the sustainable growth of SMEs in the large emerging economy of China
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