Does Regulatory Reform of Internal Controls in China Improve Internal Control Effectiveness? Role of Corporate Social Responsibility Engagement

ABSTRACT The regulatory reform of internal controls (ICs) in China mandates that certain firms incorporate corporate social responsibility (CSR) engagement into ICs and issue IC reports. Using a staggered difference-in-differences research design, we find effectiveness has worsened following this reform, but deterioration is partially mitigated when mandated report their CSR engagement. Additional analyses demonstrate further lessened reports are prepared accordance with Global Reporting Initiative reporting guidelines or assured by external auditors spend more on activities. Finally, cross-sectional suggest mitigates the non–state-owned enterprises have better financial performance, lack political connections, located regions higher market development trust. Data Availability: available from public sources cited text. JEL Classifications: M4; M48.