Contemporary Values of Confucianism and the Effectiveness of Internal Control in Corporate Management: Compatibility between Management Culture and Systems in Chinese Enterprises

Abstract

Based on data from China’s A-share listed companies from 2008 to 2017, this paper examines the influence of the contemporary values of Confucianism, namely benevolence, righteousness, propriety, wisdom, and fidelity on the effectiveness of internal control. It indicates a significant positive correlation between the contemporary values of Confucianism and the effectiveness of internal control. Furthermore, this positive influence is noticeable in family-owned businesses but is unobserved in foreign-invested enterprises in China. In addition, the contemporary values of Confucianism enhance internal control quality through two pathways: promotion incentives and corporate reputation. In regions with lower degrees of openness, lower levels of rule of law and slower marketization, or in companies facing operational crises, the contemporary values of Confucianism have a more pronounced effect on enhancing the effectiveness of internal control. The contemporary values of Confucianism have strengthened the ability of internal control to decrease agency costs and mitigate the negative influence of internal control on risk-taking.

Keywords

Confucianism / contemporary values / effectiveness of internal control / quality of internal control / corporate governance / corporate culture

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