Frontiers in Business, Economics and Management 
ISSN: 2766-824X | Vol. 7, No. 3, 2023 

 

271 

Internal	Control,	Management	Power	and	Accounting	
Information	Quality:	Based	on	Chimeric	Perspective	
Chen Chen 

School of Management, Shanghai University, Shanghai 200444, China 

 

Abstract: This paper selects 3,673 a-share manufacturing companies listed in Shanghai and Shenzhen from 2016 to 2018 as 
the research objects for empirical analysis. Based on the empirical results, it is concluded that ICindex is positively correlated 
with disclosure of accounting information, while management Power is negatively correlated with disclosure of accounting 
information. To some extent, internal control can inhibit the manipulation of earnings by management. This conclusion provides 
reference for enterprises to improve the quality of accounting information, and also provides ideas for the government to 
formulate corresponding accounting laws and regulations, which has certain practical significance. 

Keywords: Enterprise, Internal Control, Management Power, Accounting Information Quality. 
 

1. Introduction 
Accounting information reflects the financial situation of 

an enterprise, the efficiency of operation and the level of cash 
flow. It is the result of accounting work, and also an important 
reference for the decision of enterprise performance 
management and managers to organize production. The real 
and reliable quality of accounting information is the 
prerequisite and important guarantee of economic decision-
making. High-quality accounting information can provide 
decision-makers with a variety of decision information, which 
is of great value to the development of enterprises. 

In recent years, domestic and foreign accounting fraud 
cases occurred in succession, causing high vigilance of all 
sectors of society. The quality of accounting information is 
questioned by the public. Accounting fraud cases have caused 
serious adverse effects, sending wrong signals to managers 
and even relevant management departments to mislead 
managers to make wrong decisions; Destroy the seriousness 
of accounting laws and regulations, destroy the operating 
environment of market economy; Damage the interests of the 
owners, creditors, employees and customers of the enterprise 
and cause them to suffer heavy economic losses; The 
distortion of accounting information will damage the capital 
market that is developing and improving in our country, affect 
the investor's decision making, not conducive to enterprises 
to invest and finance, destroy the external environment that 
enterprises survive, cause enterprises to operate difficult, and 
seriously affect the social stability and harmony. 

Through the investigation and research of accounting fraud, 
it is found that the management plays an important role in the 
process of enterprise operation. As the actual operator of the 
company's business and operation, the management plays an 
important role which can not be ignored in the internal 
activities of the company, such as controlling the surplus, 
exaggerating the profit, changing the accruals, etc., and 
manipulates the financial statements by accounting means to 
achieve the purpose that no one knows. Theoretically, the 
excessive concentration of power at the top of a company will 
reduce the quality of accounting information. As we know, the 
separation of management and ownership exists in modern 
enterprises. As the trustee, the management is responsible for 
managing the daily operation of the enterprise and making 

decisions on the big and small affairs of the enterprise. It also 
influences the accounting department and accounting 
personnel of the enterprise, and has the ability to influence the 
final presentation of financial statements, so as to control the 
final quality of accounting information. If the power of the 
management is excessively concentrated, the management 
has the ability and methods to pursue the interests of the 
managers and damage the interests of the owners, and achieve 
their own goals through earnings manipulation. So too much 
management power will lead to distortion of accounting 
information, make its quality decline. 

In our country, there are many problems in the accounting 
information of enterprises, such as increasing the income and 
concealing the loss, concealing the major events, using 
accounting methods that do not conform to the regulations, 
and so on. Thinking about the reasons, human factors and 
policy factors. Subjectively, for the sake of personal interests 
and the overall financial performance of the enterprise, the 
manager may deliberately inflate the income and conceal the 
loss to present the good information of the enterprise to the 
enterprise owners and investors, thus reducing the quality of 
accounting information. Objectively, because of the 
development status of Chinese market economy and the 
insufficient understanding of accounting in the academic 
circle, our current accounting laws and regulations, 
accounting methods and so on still have some loopholes and 
limitations, so that the accounting information can not fully 
reflect the actual situation of enterprises. One of the key 
factors causing the distortion of enterprise accounting 
information is the lack of reasonable and effective internal 
control. It is the enterprise internal control is not perfect, 
ineffective operation makes the enterprise existing problems, 
potential risks can not quickly and effectively identify and 
take measures, affect the business of the enterprise, increase 
the possibility of financial fraud, resulting in the low quality 
of accounting information. Internal control is in order to 
improve the overall operation efficiency of the enterprise, the 
design and implementation of various restrictions and 
adjustment activities in the enterprise, help the enterprise to 
achieve the goal faster and better, can greatly protect the 
quality of accounting information, has attracted the wide 
attention of scholars from various countries. 

Therefore, it is of both theoretical and practical 



 

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significance to study and analyze the interaction mechanism 
of enterprise internal control, management power and 
accounting information quality. By strengthening internal 
control, the management can restrain earnings manipulation 
and improve the quality of accounting information, which can 
really help enterprises develop better. 

2. Research Hypothesis 

2.1. Internal Control and Accounting 
Information Quality 

Research and analysis of enterprise internal control and 
accounting information quality interaction mechanism, first 
from the elements of internal control analysis. Internal control 
environment refers to the working atmosphere provided by 
the enterprise for the majority of staff, which is the guarantee 
for the effective implementation of other elements. Good 
internal control environment can ensure the implementation 
of relevant systems, ensure the production and operation and 
financial management activities to get a true and accurate 
reflection, so as to improve the quality of accounting 
information. Risk assessment is to judge the risks that the 
enterprise will face in a timely and effective manner and 
formulate effective countermeasures. Effective risk 
assessment system can help enterprises timely discover the 
existing or will be faced with problems, so that the 
management can make preparations in advance, take 
scientific measures to deal with risks, avoid the enterprise to 
suffer significant losses, protect the interests of the enterprise, 
and then reduce the possibility of business managers in order 
to cover up business failures and manipulate the profit 
whitewash statements, to ensure the quality of accounting 
information. Control activities are to conduct scientific and 
reasonable control over the various business activities and 
procedures of the enterprise, so as to make the operation 
process of the business more standardized and scientific, 
reduce the possibility of enterprise employees taking 
advantage of system loopholes to practice favoritism, and 
ensure the quality of enterprise accounting information. The 
control procedure with mature system design and effective 
implementation can greatly improve the reliability of 
accounting information and thus improve the quality of 
accounting information. Information and communication 
means that the enterprise should establish and improve the 
information transmission mechanism, so that the important 
information of the enterprise operation can be transmitted in 
time, so that the managers can know the situation in time, and 
the various departments can exchange what they have. Perfect 
information transmission mechanism can speed up the 
feedback speed of relevant information of enterprises, 
enterprises can make faster response measures to protect the 
interests of enterprises, so as to improve the quality of 
accounting information. Internal supervision can make 
enterprise managers know the extent of the implementation of 
other procedures under internal control in time. The design of 
mature internal supervision can guarantee the implementation 
effect of the relevant system of the enterprise, make the 
internal control really play a role, improve the quality of 
accounting information. Therefore, it is speculated that 
internal control has a positive impact on the quality of 
accounting information as a whole, which can improve the 
quality of accounting information. 

Based on theoretical analysis, the research hypothesis is 
proposed: 

H1: Enterprise internal control is positively correlated with 
accounting information quality. 

2.2. Management Power and Accounting 
Information Quality 

With the continuous development and perfection of 
enterprise structure, ownership and management are 
generally separated in modern enterprises. With the 
development of enterprise economy and the continuous 
development of enterprise scale, enterprise owners are unable 
to manage themselves in the whole process like a small 
workshop. Whether in terms of ability or professionalism, 
managers need a professional manager to help enterprise 
owners. Therefore, the owner will transfer the management 
right of the enterprise to the professional personnel, who will 
conduct the operation and management. This greatly 
improves the efficiency of the enterprise. At the same time, 
there are agency problems. Managers, as direct participants in 
the business activities of enterprises, have more detailed 
information about enterprises than the owners. However, 
shareholders can only understand the information of the 
enterprise through financial statements or shareholders, and 
do not know much about their own enterprises. Management 
has an information advantage over shareholders. In order to 
reduce the information difference between shareholders and 
managers, shareholders often carry out corresponding equity 
incentives. With the equity incentive, the power of 
management is further expanded and more able to influence 
corporate earnings. However, the interests of shareholders 
and management are quite different. Shareholders hope to 
maximize corporate profit and corporate value. And 
management is more concerned about their own 
compensation, benefits, etc. So when management has too 
much power, it may sacrifice owner's equity for its own sake. 
Especially when the performance of the management is 
related to the net profit of the financial statements, the 
management has a strong motivation to manipulate the 
corporate earnings and whitewash the financial statements to 
create the illusion of corporate prosperity. Management often 
reduces the quality of accounting information by reducing the 
quality of accounting information to different degrees of 
earnings management, whitewash the real financial 
information and other ways to reduce the quality of 
accounting information. 

Based on the above theoretical analysis, this paper 
proposes the following hypothesis: 

H2: There is a negative correlation between management 
power and accounting information quality. 

2.3. Internal Control, Management Power and 
Accounting Information Quality 

When management has too much power, it may sacrifice 
owner's equity for its own sake. Especially when the 
performance of the management is related to the net profit of 
the financial statements, the management has a strong 
motivation to manipulate the corporate earnings and 
whitewash the financial statements to create the illusion of 
corporate prosperity. Management often reduces the quality 
of accounting information by reducing the quality of 
accounting information to different degrees of earnings 
management, whitewash the real financial information and 
other ways to reduce the quality of accounting information. A 
well-run internal control can effectively curb the problems 
caused by excessive management power. Internal control can 



 

273 

restrain the excessive power of the management through the 
system, rationally allocate the power structure of the 
management, and give full play to the supervisory role of the 
board of directors for the enterprise. Internal control can 
restrain the motivation of management to manipulate earnings, 
reduce the opportunity of management to manipulate, and 
block the way of management to make mistakes from the 
process and system. The various elements of internal control 
can play a role in the normal operation of the enterprise from 
different aspects, restrain the power concentration of the 
management, solve the agent problem between the 
management and the shareholders, so as to improve the 
quality of accounting information. 

Based on the above analysis, this paper proposes the 
following hypothesis: 

H3: Internal control can alleviate the negative effect 
between management power and accounting information 
quality. 

3. Research Design 

3.1. Sample and Data Source 
This paper takes Shanghai-Shenzhen A-share 

manufacturing listed companies from 2016 to 2018 as 
samples. In order to enhance the reliability of empirical data 
and the persuasiveness of empirical research, the sample data 
is screened as follows: 

(1) Remove ST, *ST, PT and other samples 
(2) The samples newly listed and discontinued in the 

selected year are excluded, and the samples normally listed 
are selected 

(3) Eliminate data missing and discontinuous samples 
Finally, a total of 3,673 sample data were selected, 

including 960 state-owned enterprises and 2,713 non-state-
owned enterprises. 

In this paper, the accounting information quality of the 
explained variable, the authority of the manager of the 
explained variable, and the asset-liability ratio of the control 
variable are all from CSMAR database. The explanatory 
variables measure the internal control data from Shenzhen 
Dibo Company Risk management database (DIB). Excel and 
Stata15 are used for data processing and statistical analysis in 
this paper. 

3.2. Variable Design and Model 
3.2.1. Variable Definition 

This paper selects the modified Jones model to calculate 
the quality of accounting information disclosure, and reflects 
the quality of accounting information disclosure through the 
absolute value of discretionary accruals. The greater the value 
of |DA|, shows that the higher the extent of enterprise surplus 
management, manipulation profit, the more the lower the 
quality of accounting information disclosure. The enterprise 
internal control composite index in Shenzhen Dibo Risk 
Management Database (DBI) is selected to measure the 
internal control. The higher the score, the better the internal 
control quality of the enterprise, the mature and effective 
implementation of the system. In this paper, the following two 
indicators are adopted to measure management power. It is 
expressed by the total number of management power obtained 
by the sum of the two dummy variables of equity dispersion 
and integration of two positions. The higher the value, the 
more power management has. 

The definition and description of variables studied in this 
paper are shown in Table 1: 

 
Table 1. List of Variable Definitions 

 Name Symbol 
Explained Variable Accounting Information Quality Disclose 

Explanatory Variable 

Internal Control ICindex 

Management Power 
Power 
power1 
power2 

Control Variable 

Enterprise Scale Size 
Asset-liability Ratio Lev 
Income Growth Rate Growth 

Rate of Return on Total Assets Roa 
Nature of Enterprise State_owned 

 

3.2.2. Research Model 
There are three regression models in this paper, which are 

formula (1), (2) and (3). 

 

titititititititi ownedStateaRoaaGrownaLevaSizeaICindexaaDisclose ,,6,5,4,3,2,10, _          (1) 
 

titititititititi ownedStateaRoaaGrownaLevaSizeaPoweraaDisclose ,,6,5,4,3,2,10, _     (2) 
 

titititi

titititititi

ownedStateaRoaaGrowna

LevaSizeaPowerICindexPowerICindexaaDisclose

,,8,7,6

,5,4,3,2,10,

_ 






     (3) 
 
 
 
 



 

274 

 

4. Empirical Analysis 

4.1. Descriptive Statistics 
According to the analysis in Table 2, the maximum value 

of absolute value of maneuverable accruals (Disclose) is 
1.471 and the minimum value is 0.0000199, which vary 
greatly among different enterprises. Meanwhile, the average 
value of absolute value of maneuverable accruals (Disclose) 
is 0.0744, which is far smaller than the maximum value. 
Therefore, it is speculated that there may be special values in 
the data. Its standard deviation is 0.0725, and the degree of 
data dispersion is small. The maximum value of internal 
control is 6.795, and the minimum value is 4.884, indicating 
that different enterprises have different levels of internal 
control. Its average value is 6.472, which is not much 
different from the maximum value. It is speculated that the 
data distribution is relatively uniform and roughly normal, 
and there may be small special values. The standard deviation 
is 0.139, and the degree of data dispersion is small, indicating 
that most sample enterprises have good internal control, 
which corresponds to the good quality of accounting 
information mentioned above. Management Power is an 
integral variable, with a maximum value of 2, a minimum 
value of 0, an average value of 0.756, and a standard deviation 
of 0.692. It is speculated that most sample enterprises have 
the phenomenon of management power concentration. If the 

average value is less than 1, it may be inferred that the 
management power concentration degree is small and the data 
dispersion degree is small. 

Among the control variables, the maximum value of the 
enterprise Size (Size) index is 27.39 and the minimum value 
is 19.20, with a large range and a few extreme values. It can 
be seen that there is a large dispersion degree of sample 
enterprises and a large gap in the overall size of enterprises. 
The average is 22.07; The standard deviation is 1.145, 
reflecting the large degree of dispersion of the enterprise size 
of the sample enterprises. The maximum value of asset-
liability ratio (Lev) was 1.352, and the minimum value was 
0.0216. The average value is 0.373, far less than 0.5, and the 
standard deviation is 0.182. The degree of sample dispersion 
is small, indicating that most sample enterprises have little 
debt and decent solvency on the whole, and only a few 
enterprises have high asset-liability ratio index. The average 
rate of return on total assets (Roa) is 0.0507, the maximum 
value is 0.466, the minimum value is -0.593, and the standard 
deviation is 0.0623. The dispersion degree of sample data is 
small, but there are large differences among individuals, and 
there are lossmaking enterprises. The maximum value of 
Growth was 55.04, the minimum value was -0.862, the mean 
value was 0.259, and the standard deviation was 1.235. It is 
speculated that there is a large degree of data dispersion and 
negative growth of enterprises. 

 

Table 2. Descriptive Statistics 

 Obs Mean Std.Dev. Min Max 
Disclose 3, 673 0.0744 0.0725 1.99e-05 1.471 
ICindex 3, 673 6.472 0.139 4.884 6.795 
Power 3, 673 0.756 0.692 0 2 
Size 3, 673 22.07 1.145 19.20 27.39 
Lev 3, 673 0.373 0.182 0.0216 1.352 
Roa 3, 673 0.0507 0.0623 -0.593 0.466 

Growth 3, 673 0.259 1.235 -0.862 55.04 
State_owned 3, 673 0.261 0.439 0 1 

 

4.2. Correlation Analysis 
It can be seen intuitively from the correlation coefficients 

of variables in Table 3 that the coefficient of explained 
variables and explanatory variables is -0.034, indicating that 
internal control (icindex) is negatively correlated with 
absolute value of maneuverable accruals (Disclose), that is, 
the better the internal control, The lower the absolute value of 

operational accruals, the higher the quality of accounting 
information. It shows that good internal control can restrain 
the management of enterprise earnings manipulation, so as to 
improve the quality of accounting information. The 
coefficient of disclosure variable and explanatory variable is 
0.016, indicating that management Power is positively 
correlated with absolute discretionary accruals. This is 
consistent with our general analytical understanding. 

 

Table 3. Correlation Analysis 

 Disclose ICindex Size Lev Roa Growth Power 
Disclose 1.000       
ICindex -0.034** 1.000      

Size 0.057*** 0.076*** 1.000     
Lev 0.131*** -0.054*** 0.530*** 1.000    
Roa -0.053*** 0.272*** -0.014 -0.332*** 1.000   

Growth 0.212*** 0.065*** 0.071*** 0.060*** 0.047*** 1.000  
Power 0.016 -0.004 -0.151*** -0.077*** -0.013 0.027* 1.000 

 

 

 

 



 

275 

 

4.3. Regression Analysis 
As can be seen from Table 4, internal control has a 

significant impact on discretionary accruals at the 
significance level of 5%. This indicates that good internal 
control can reduce the absolute value of discretionary accruals. 
The higher the quality of accounting information, the 
verification of hypothesis 1. Further test shows that in state-
owned enterprises, the coefficient is -0.006, although the sign 

is still negative, but not significant. In the regression of non-
state-owned enterprises, the coefficient is -0.026, and the 
correlation is negative at the significance level of 5%. 
Therefore, it is speculated that the influence of internal 
control on the quality of accounting information is more 
obvious in non-state-owned enterprises, and non-state-owned 
enterprises should strengthen the construction of internal 
control. 

 

Table 4. Internal Control and Accounting Information Quality Regression Coefficient 

 Full sample State-owned enterprise Non-state-owned enterprise 
VARIABLES Disclose Disclose Disclose 

ICindex -0.019** -0.006 -0.026** 
 (2.21) (0.48) (2.27) 

Size -0.002 -0.004* -0.002 
 (-1.39) (-1.95) (-1.32) 

Lev 0.050*** 0.048*** 0.058*** 
 (6.11) (3.20) (5.90) 

Roa -0.036* 0.234*** -0.092*** 
 (-1.73) (4.99) (-3.93) 

Growth 0.012*** 0.018*** 0.011*** 
 (12.83) (7.93) (10.64) 

Constant -0.030 0.105 -0.069 
 (-0.50) (1.20) (-0.86) 

Observations 3, 673 960 2, 713 
R-squared 0.062 0.099 0.070 

t-statistics in parentheses 
*** p<0.01, ** p<0.05, * p<0.1 

 
As can be seen from Table 5, when management Power is 

taken as explanatory variable, its full sample coefficient α1 is 
0.002, the coefficient of state-owned enterprises is 0.001, and 
the coefficient of non-state-owned enterprises is 0004. 
However, only non-state-owned enterprises are positively 

correlated at the significance level of 10%, while the other 
two groups are not significant, but the coefficient signs are 
positive. It shows that in non-state-owned enterprises, the 
management is more likely to manipulate earnings profits 
when its power increases. 

 
Table 5. Management Power and Accounting Information Quality Regression Coefficient 

 Full sample State-owned enterprise Non-state-owned enterprise 
VARIABLES Disclose Disclose Disclose 

Power 0.002 0.001 0.004* 
 (1.10) (0.21) (1.84) 

Size -0.001 -0.004* -0.002 
 (-1.10) (-1.91) (-1.07) 

Lev 0.050*** 0.047*** 0.057*** 
 (6.09) (3.19) (5.89) 

Roa -0.024 0.238*** -0.075*** 
 (-1.20) (5.12) (-3.35) 

Growth 0.012*** 0.018*** 0.011*** 
 (12.89) (7.97) (10.69) 

Constant 0.086*** 0.142*** 0.089*** 
 (3.32) (3.36) (2.64) 

Observations 3, 673 960 2, 713 
R-squared 0.061 0.099 0.069 

t-statistics in parentheses 
*** p<0.01, ** p<0.05, * p<0.1 

 
In the third regression model, management power, internal 

control and their cross terms are added, and the regression is 
carried out again, and the previous results are compared and 
analyzed. Compared with the previous model results, it can 
be seen that the regression significance is significantly 

improved under all samples. Internal control changes 
significantly from 5% in the first model to significantly 
negative correlation at 1% level; management power changes 
significantly from insignificant in the second model to 
significantly positive correlation at 1% level. The cross term 



 

276 

is negatively correlated with the controllable accruals at 1% 
level, indicating that the management can be supervised 
through reasonable allocation of authority under the condition 
of perfect internal control system and effective execution, so 
as to reduce the negative effect of excessive power of the 

management on the quality of enterprise accounting 
information. However, this relationship is not significant in 
state-owned enterprises, indicating that in state-owned 
enterprises, the strength of earnings manipulation through 
internal control to improve the management is relatively weak. 

 
Table 6. Internal Control, Management Power and Accounting Information Quality Regression Coefficient 

 Full sample State-owned enterprise Non-state-owned enterprise 
VARIABLES Disclose Disclose Disclose 

ICindex -0.040*** -0.015 -0.065*** 
 (-3.39) (-0.99) (-3.56) 

Power 0.198*** 0.113 0.245** 
 (2.78) (0.98) (2.56) 

ICindex*Power -0.030*** -0.017 -0.037** 
 (-2.76) (-0.98) (-2.52) 

Size -0.002 -0.003 -0.002 
 (-1.43) (-1.39) (-1.05) 

Lev 0.053*** 0.026* 0.062*** 
 (6.86) (1.91) (6.62) 

Roa -0.011 0.071*** -0.061*** 
 (-1.10) (4.37) (-4.63) 

Growth 0.012*** 0.018*** 0.011*** 
 (12.76) (7.89) (10.63) 

Constant -0.169** 0.034 -0.331*** 
 (-2.12) (0.33) (-2.72) 

Observations 3, 672 960 2, 712 
R-squared 0.064 0.094 0.076 

t-statistics in parentheses 

*** p<0.01, ** p<0.05, * p<0.1 

 

5. Conclusion 
This paper theoretically analyzes how enterprise internal 

control and management power affect the quality of 
accounting information and proposes hypotheses. A total of 
3,673 data data of Shanghai and Shenzhen A-share 
manufacturing industry from 2016 to 2018 are selected as 
samples for analysis and extreme values are removed. This 
paper uses the absolute value of operational accruals to 
measure the quality of accounting information (Disclose) as 
the explained variable and internal control (ICindex) and 
management Power as the explanatory variables to conduct 
an empirical study. Based on the empirical results, it is 
concluded that ICindex is positively correlated with 
disclosure of accounting information, while management 
Power is negatively correlated with disclosure of accounting 
information. To some extent, internal control can inhibit the 
manipulation of earnings by management. 

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