ENTERPRISE RISK MANAGEMENT AND INTERNAL CONTROL OF CHINESE FAMILY BUSINESSES

Abstract

The purpose of this study is to examine the effectiveness of internal control in Chinese family firms for the future sustainability of family firms. Family firms' management familiality, firm size, listing years, gearing ratio, shareholding ratio, and information transparency are the independent variables in this study. In addition, this study uses the effectiveness of internal control of family firms as the dependent variable. The data analysis method used in this study is multiple regression analysis. The sample used in this study includes family firms listed on the China Stock Exchange during 2012-2021, with 5934 valid samples. Higher levels of executive familiality, longer years on the market, and higher gearing all reduce the effectiveness of internal controls. Nevertheless, larger corporate size and higher shareholding of the first largest shareholder can enhance the effectiveness of internal control. At the same time, higher information transparency helps to convey more information about corporate management to investors. It helps to restrain unreasonable behaviours imposed on internal control by the executive team. The result assists the family businesses in identifying their problems at the source so they can prevent and find ways to correct them.