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ABSTRACT

Accounting education is increasingly empiricist. Internal control and cash dividends are discussed.

The teacher-written essay asks, analyzes, and answers questions. Type of firm affects internal

control and cash dividend policy linkage. This paper will help teachers teach practical accounting.

This will expand accounting empirical research

INTRODUCTION

The field of empirical accounting is the center of much research and development (Apostolou et al.,

2017). Empirical research methods are rarely prioritized in accounting education, which is problematic in

fast emerging nations like China (McPeak et al., 2012). Accounting research based on real data (Paisey &

Paisey, 2004). Data from China's capital market and studies on internal control and cash dividend policy

are used to analyze accounting education. The research improves empirical accounting education and

practice. Theoretical conclusions and open-ended research should be taught to accounting students (Guo,

2011; Beatty & Liao, 2014). This study swiftly developed research questions and conducted a preliminary

theoretical evaluation thanks to internal control and the cash dividend policy.

Government and private investors in China prioritize dividends (Powell et al., 2012). In May 2014, the

Canadian Securities Regulatory Commission (CSRC) announced "On Further Implementation, the
Related Matters of Listed Businesses' Cash Dividend." The warning said companies' cash dividend

policies were being monitored. Why do regulators emphasize financial incentives for economic growth?

No one solved Black's "Dividend Payment Riddle" in 1976. Adjaoui and Amar's principal-agent dividend

idea makes sense. Cash gains might cut principal and agency payments. Paying dividends in cash reduces

a firm's free cash flow, removes the risk of managers laundering corporate funds, and reduces the cost of

hiring an intermediary to resolve disagreements between owners and management. Principal-agent theory

helps explain cash dividend patterns. Due to company management (Adjaoud & Ben-Amar, 2010). If

you're right, public corporations may need to rethink how they distribute dividends.

Internal control quality, cash dividend policy, and principal-agent research are still being studied as a

result of the principal-agent theory. Neither internal control nor monetary dividends have been proven to

have any effect. Studies have shown cash dividend policies and high-quality control mechanisms can

reduce principal-agent expenses (Fairchild, 2010; Ying, 2016). This study provides the results and a

replacement model for the impact of internal control quality on the cash dividend policy of publicly

traded companies. According to the model, small shareholders will be well-served by publicly traded

companies that have higher internal standards of quality. Rules and regulations that are more stringent

help regulators spend their money wisely and get the benefits (La Porta et al., 2000; Mitton, 2004).

Principal-agent costs are lower in organizations with effective internal control, according to the

replacement model. Due to the fact that cash dividends have less of a role in reducing principal-agent

costs, they are less likely to pay cash dividends and are less likely to pay cash dividends.

The two American research supports both perspectives. Markets need regulation. Capital market

efficiency, investor protection, and ownership structure increased with split-share reform (Yeh, 2005).

State-owned firms study China's stock market. Ultimate difference controllers raise principal-agent,

internal control, and cash dividend policy discrepancies (Capalbo et al., 2014; Guo et al., 2017).

Examining listed corporations' cash dividend practices requires considering ultimate controllers. This
study analyzes the relationships between internal control quality, cash dividend payment trend, and

payment level for 2004-2013 China A-share main board listed companies. Studies prove profits (La porta

et al., 2000). Internal control boosts profits. State controllers increase correlation. Internal control

determines China's cash dividend trend and amount. The administration intends to boost dividends and

protect small investors.

THEORY AND HYPOTHESIS

Theoretical analysis and research hypotheses should interest accountants. Some accounting empirical

research publications have weak theoretical support and unreliable hypothesis suggestions. All these

issues must be addressed in accounting classrooms. The dividend agent model is used to analyze the

positive and negative links between internal control and cash dividends. As a pillar of China's economy,

state-owned firms may affect internal control and a dividend. When assessing the two, this research

analyzes the sort of enterprise.

Controls and dividends

Cash dividend policy of public companies has been studied by several experts, but there hasn't been a

perfect explanation for listed corporations paying the dividend. Scholars in the field of finance are

working to find a solution. When it comes to solving "the dividend payment conundrum," the research on

internal control quality and cash dividend policy is what the introduction claims to have done.

Adjaoud & Ben-Amar, 2000, apply principal-agent theory. La Porta and others proposed the approach in

2000. Several experts are examining the relationship between a company's governance structure and

dividend policy due to a new research paradigm. Two study environments. Some say company

governance, including equity structure, state ownership, and the corporate governance index, influences
cash dividend policy. Mitton (2004) established a link between corporate governance structure and

dividends. Farinha (2003) reached the same conclusion using UK and US market data. Alternately, a

company's governance structure and dividend policy are inversely related. Utilizing John and Knyazeva

discovered that 2006's stronger governance framework reduced principal-agent conflicts. Short (2002)

and others lose motivation to increase financial rewards. The study supports dividend substitution.

Internal control, a key governance mechanism for public corporations, acts like the cash dividend policy.

As a measure of power balance, internal control can reduce information asymmetry between

administrators and investors (Cheng et al., 2013; Gao & Wang, 2017) and reduce listed enterprises'

principal-agent costs (Ge et al., 2017; Tsai, 2017). 2017 (Ge et al.; Tsai) Using LLSV's 2000 research

models and current research theories, we believe internal control quality positively connects with cash

dividend propensity and level. High-quality internal control can give investors more protection through

information disclosure, such as financial status and operating results, and by enhancing regulators'

oversight, which increases the possibility of finding fund misuse. Forcing administrators to pay higher

dividends to match investor expectations for decreased agent expenditures. Cash dividend trend and level

are inversely correlated with internal control quality. Costs of principal agents and internal control quality

are inversely connected. The greater a listed company's internal control, the lower its principal-agent

costs, hence it pays fewer cash dividends. Investors believe companies with poor internal controls risk

excessive investment and financial misuse, resulting in a serious principal-agent dilemma. External

investors will increasingly use dividend payments as investing cues. Public companies provide cash

dividends to insiders (managers and significant owners) and outsiders (mid and small shareholders) to

reduce principal-agent expenses (mid and small shareholders). The better a company's internal controls,

the lower its cash dividend propensity and level.

The initial theoretical analysis suggests two competing hypotheses.

Under steady conditions, a public company's internal control quality affects its cash dividend propensity

and payment level. The stronger the internal control quality, the higher the cash dividend propensity and

payment level. Under steady conditions, a public company's internal control quality affects its cash

dividend propensity and payment level. The higher the internal control quality, the lower the cash

dividend propensity and payout level.

Ultimate Controllers, Internal Control, and Cash Dividends

Due to China's institutional background, state-owned companies have contributed to economic growth.

Since the reform of non-tradable shares, China's listed enterprises' ownership structure has improved,

although state-owned companies still play key roles in the economy. Due to government meddling, state-

owned firms generally have social roles and vary in performance, financial decision-making, and

corporate culture.

Non-state business governance (Aharoni, 1981). (1981) Character of final controllers influences cash

dividend appeal, research suggests. Moh'd (1995) and Allen (2000) similarly found that controllers of

different property rights have different interest reasons. The discrepancy between state-owned and non-

state-owned corporations grows with fundamental internal control regulations for listed firms. Lu found

in 2011 that state-owned holding corporations have superior internal control and salary-performance

sensitivity than non-state-owned holding enterprises. Tong's 2012 research found that state-owned firms

relying on their unique relationship with the government lacked a motivation to report or improve internal

control quality. Research demonstrates ultimate controllers effect internal control quality and cash

dividend policy.

Wang et al. (2007) discovered that state-owned firms have a longer control chain than others, which

disregards administrator oversight and owner absence, rising principal-agent costs. Long control chains

and lack of enthusiasm to implement internal control requirements might undermine the internal control

system and raise the principal-agent problem, hurting internal control quality and cash dividend policy.
State-owned enterprises, the heart of the economy, usually execute government goals well. State-owned

enterprises start again when applying "The enterprise internal control basic norm" State-owned firms

applied the corporate internal control standard first. This means state-owned corporations have better

internal controls. Internal controls can solve principal-agent problems and affect dividend policy.

METHODOLOGY

Variable definition, model contribution, data collection, etc. are part of accounting empirical research

(Rebele & Pierre, 2015; Yuan et al., 2017). rebele & pierre; yuan et al. Follow-up empirical study

findings depend on the authenticity of data gathering and model development (Gassen, 2014).

(2014)Gassen We'll discuss this study's three parts.

Table 1. Description Table of Internal Control Quality and Cash Dividend Policy

All State Non-state

Year N ICI DIV DIVRATE N ICI DIV DIVRATE N ICI
DIV DIVRATE
2004 1100 6.495 50.3 0.278 806 6.514 53.5 0.305 294 6.436 41.5 0.206
2005 1143 6.483 50.7 0.328 827 6.501 53.7 0.353 316 6.432 43.0 0.254
2006 1139 6.522 47.7 0.248 787 6.540 50.1 0.270 352 6.480 42.3 0.198
2007 1142 6.528 48.5 0.214 784 6.541 51.4 0.230 358 6.499 42.2 0.178
2008 1159 6.509 47.7 0.340 803 6.519 52.2 0.389 356 6.485 37.6 0.220
2009 1156 6.527 49.6 0.213 797 6.540 53.7 0.243 359 6.500 40.4 0.147
2010 1159 6.542 53.1 0.201 802 6.554 56.7 0.207 357 6.516 45.1 0.185
2011 1135 6.544 57.1 0.265 781 6.550 61.1 0.274 354 6.531 48.3 0.230
2012 1260 6.523 55.0 0.281 807 6.527 59.7 0.302 453 6.517 46.6 0.240
2013 1312 6.484 62.3 0.293 826 6.499 65.4 0.293 486 6.459 57.2 0.284
Total 11705 6.515 52.4 0.267 8020 6.528 55.8 0.287 3685 6.487 45.0 0.217

Sampling and data source

We use 2004-2013 A-share main board enterprises as study objects and filter the original data. (1)

Exclude financial firms due to their distinctiveness. (2) Cut firms with unclear controllers and lost data.

Eliminate ST, *ST, and PT businesses. (4) Eliminate deficit and dividend companies. (5) To control the
influence of extreme values on regression conclusions, we winsorize top and bottom 1% of continuous

variables to obtain 10-year data and 11705 measure values. Table 1 lists 8020 state-owned and 3685 non-

state-owned firms. This proves that state-owned firms are vital to our economy. In the last decade, sample

firms' internal control quality has averaged 6.5. Cash dividend payment tendency and amount have

fluctuated throughout time, primarily proportional to the sample firm's profitability. State-owned

corporations have better internal control, dividend payment inclination, and payment amount.

To assure the veracity of the data, the author arranged the data from listed companies' annual reports. (1)

DIB internal control and risk management database. CSMAR database. (3) WindDB.

Empirical Model Variables

This study examines dividend propensity and level (Bradford et al., 2013). Bradford et al. Their DIV

stinks. If a corporation pays in the same year, mark 1; otherwise, 0. Dividend-to-earnings ratio

(DIVRATE). Using DIB's ICI and risk management data, we'll measure a listed company's internal

control quality. Management, compliance, asset safety, strategy, and report are measured. Consistently

released for years, recognized by the theoretical cycle and practice circle, and widely used in internal

control research.

This article sets the control variables of listed firms, including scale, profitability, balance sheets, growth,

operation ability, cash flow situation, Outstanding shares, ownership concentration, and market

capitalization.

Table 2. Variable Definitions

Variables Description
DIV Dummy variable. If a listed company pays in the very year the cash dividend, then
we will 1 to mark, if not, zero will be marked.
DIVRATE Dividend per
share/Earnings per share ICI
Internal control index
(Nature logarithm)
SIZE Nature logarithm of ending total assets
ROA Return on total assets
LEV Gross liabilities/total assets
 GW (The very year operation revenue-last year operation
revenue)/Last year operation revenue TAT Ending operation
revenue/Ending total assets
(Net increase in cash and cash equivalents-The net cash flow generated by
FCF
financing activities) The current value/The ending value of paid-up capital
LIQOID Numbers of A-share in circulation/The
total number of equity TOP1 Shareholding ratio of
companies’ largest shareholder
AGE The difference between the very
year and listing year YEAR Year dummies
IND Industry dummies
Listed years. At the same time, it also controls the effect o f years and industry. And the

detailed variable definitions are as follows in Table 2.

To testify to the two research hypotheses in the above passage, build two regression models to

examine the impacts of the internal control quality of a listed company on the cash dividend policy.

𝑃(𝐷𝐼𝑉)

𝐿𝑛 � � = 𝛼0 + 𝛼1 𝐼𝐶𝐼𝑖,𝑡 + 𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝜀𝑖,𝑡

[1 − 𝑃(𝐷𝐼𝑉 )]

DIVRATE = 𝛼0 + 𝛼1 𝐼𝐶𝐼𝑖,𝑡 + 𝛼2𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝜀𝑖,𝑡

Model 1 examines the impact of internal control quality on dividend payouts. Because DIV is a dummy

variable, this section utilizes panel logit. Model 2 checks cash dividend internal control. This part

employs the panel Tobit model since DIVRATE > 0. When testing hypothesis 2, we divide our samples

based on the ultimate controllers of listed enterprises into state-owned and non-state-owned groupings.

Model 1 examines the impact of internal control quality on dividend payouts. Because DIV is a dummy

variable, this section utilizes panel logit. Model 2 checks cash dividend internal control. This part

employs the panel Tobit model since DIVRATE > 0. When testing hypothesis 2, we divide our samples

based on the ultimate controllers of listed enterprises into state-owned and non-state-owned groupings.

DATA

Describe and estimate variables

Table 3 lists the study's variables. Table 3 reveals that state-owned enterprises' cash dividend propensity

and level are higher. These differences in key variables are consistent with the above theoretical theory. It

shows the difference between state-owned and non-state-owned firms in other control variables besides

FCF per share. 1 percent, 5 percent, 10 percent imply statistical significance between state-owned and

non-state-owned firms. Chi-square, t-statistic, and Wilcoxon are used for DIV.

Table 3

We did a mean difference test on variables (ICI) that influenced cash dividend payments. First, we

divided the sample groups by dividend payment. Next, we compared the two groups' mean internal

control quality. Second, we can compare state-owned and non-state-owned dividend distributions based

on rulers' personalities. Table 4 illustrates that companies that pay cash dividends have better internal

controls than those that don't, proving 1a. Panel B showed that state-owned enterprises have better

internal control than non-state-owned companies, validating hypothesis 2a.

 Table 4. Mean Difference Test

Table 5. Correlation Coefficient

Correlation

Table 5 displays correlations. Internal control quality is positively correlated with cash dividend

propensity and level. This proves 1a. All coefficients are positive except debt level, free cash flow per

share, years, and cash dividend propensity/level.

Multi regression

The logit model evaluates internal control and cash dividend propensity. Panel fixed effects logit models

can eliminate independent variable observations (within the sample interval all 0 or all 1). The paper will

use the random effects model to be compatible with the panel to bit model and the fixed effects model

regression findings as a robustness test.

Table 6 shows a 1 percent statistical correlation between ICI and DIV. Internal control raises odd log

dividend ratios by 1.66.

Table 6. Panel Logit Regression of Internal Control Quality and Cash Dividend Payment Propensity

1 point predicts sample businesses' cash dividend payment propensity will increase by 0.841, verifying

1a. Next, we ran model 1 for state-owned and non-state-owned companies by ultimate controller. Internal

control quality (ICI) showed a 1% positive connection with cash dividend inclination in state-owned firm

samples but only 10% in non-state-owned firms. Odd logarithm ratios of cash dividend payment tendency

will increase 2.047 in state-owned companies when internal control quality raises one level (or 1 point).

Non-state-owned firms' odd logarithm ratios will increase by 1.043 (payment propensity will increase by

0.739), supporting research hypothesis 2a, the state-owned nature of listed companies' demands.

Internal control quality, cash dividends, and regression subsamples are shown in Table 7. Total sample

regression results demonstrate a positive correlation (level of 1 percent) between listed firms' internal

control quality (ICI) and cash dividend payment level, supporting our research hypothesis. 1a. Internal
control quality in state-owned corporations is positively associated with 1% cash dividends, but not in

non-state-owned companies. 2a.

Table 7. Panel Tobit Regression of Internal Control Quality and Cash Dividend

Tables 6 and 7 show that internal control and dividend policy are correlated (payment propensity and

level). Privately held enterprises have a weaker or nonexistent link to state-owned ultimate controllers

(the payment level).

Endogeneity

The paper focused on how listed companies' internal control affects cash dividend policy. Cash dividend

policy may influence agency costs, indicating endogeneity between internal control quality and a cash

dividend. We'll use Jiraporn and Ning's (2006) study to compare listed companies' internal control quality

and cash dividend policy. Granger test regression models (1969).

DIV(𝑡) = 𝛼0 + 𝛼1𝐼𝐶𝐼𝑖,𝑡−1 + 𝛼2𝐷𝐼𝑉𝑖,𝑡−1 + 𝛼3𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝜀𝑖,𝑡 (3)

ICI(𝑡) = 𝛽0 + 𝛽1𝐼𝐶𝐼𝑖,𝑡−1 + 𝛽2𝐷𝐼𝑉𝑖,𝑡−1 + 𝛽3𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝜀𝑖,𝑡 (4)

DIVRATE(𝑡) = 𝛼0 + 𝛼1𝐼𝐶𝐼𝑖,𝑡−1 + 𝛼2𝐷𝐼𝑉𝑅𝐴𝑇𝐸𝑖,𝑡−1 + 𝛼3𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝜀𝑖,𝑡 (5)

ICI(𝑡) = 𝛽0 + 𝛽1𝐼𝐶𝐼𝑖,𝑡−1 + 𝛽2𝐷𝐼𝑉𝑅𝐴𝑇𝐸𝑖,𝑡−1 + 𝛽3𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠𝑖,𝑡 + 𝜀𝜀𝑖,𝑡(6)

Internal control quality affects cash dividend policy, hence coefficient 1 in models 3 and 5 should be

different from 0. In models 4 and 6, 2 should be 0. A cash dividend program should improve internal

control, but 1 doesn't.

Table 8 shows estimations. Models 3 and 5 show a link between lag 1 internal control quality and

dividend propensity and level (all at 1 percent ). Poor internal control and dividends 1. Quality of internal

controls and dividend policy are not endogenous. More internal control.

Table 8. Granger Causality Test between Internal Control Quality and Cash Dividend Payment

Propensity/Level

DISCUSSION

Using panel logit and Tobit models, the study examines internal control quality and cash dividend. Based

on principal-agent theory and earlier research, the study gives results and an alternative model about

internal control quality's impact on cash dividends, then deduces the relevant hypotheses. Cash dividend

propensity and level have a statistically positive effect on internal control quality. Controlling operation
results weakens the influence. This study uses the Granger causality test to show that internal control

quality affects listed company dividend policies. Internal control quality in public companies dictates

dividend payment policy and affects ultimate controllers.

CONCLUSION

This research focuses on accounting education's major aspects and problems, as well as empirical

research methods. Students, especially graduate students in accounting empirical courses, should teach

accounting research methods and approaches.

This study encourages empirical accounting and educates regulators and investors. Listed businesses with

robust internal controls can eliminate agency conflicts between insiders and outsiders, limit governors'

opportunism in cash dividend payment policy, and pay greater cash dividends. China's government

officials have more options for formulating standards because they're supporting small investor interests

and enhancing cash dividend regulations. When formulating policies, regulators should consider

differences between ultimate controllers.

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