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.
Highlights
In recent years, Chinese enterprises are accelerating the construction of internal control systems to achieve their sustainable development
From the perspective of internal control effectiveness, this paper analyzes the influences of internal control on the assumption of corporate social responsibility, and the fulfillment of corporate social responsibility according to the Stakeholder Theory, Principal-Agent Theory and Reputation Theory
This paper breaks through the previous literature that only analyzed the assumption of corporate social responsibility based on the accrual basis [8,9,10], or only analyzed the fulfillment of corporate social responsibility based on the cash flow system [11,12]
Summary
Chinese enterprises are accelerating the construction of internal control systems to achieve their sustainable development. Internal control effectively controls the risk of social responsibility, safeguards the legitimate rights and interests of stakeholders, and promotes the successful realization of the strategic goal of social responsibility practice. As a system of enterprise risk management and control, when internal control is effective, it can prevent improper behaviors that damage corporate reputation and image, avoid adverse events that damage social responsibility practice, and improve corporate social responsibility performance. From the perspective of Stakeholder Theory, the conflict between economic responsibility and social responsibility is alleviated, and the goals of corporate governance and social governance are organically integrated While fulfilling their social responsibilities, the company conveys information such as abiding by the law and good business performance to the public. The more effective the internal control operation is, the higher the strategic management level of the enterprise is, indicating the better fulfillment degree of corporate social responsibility. The effective internal control significantly improves the degree of fulfillment of corporate social responsibility
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