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Does the geographical proximity between the chairman and the CEO affect internal control quality?

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  • Junli Yu
  • Xin Jin
  • Shangkun Liang

Abstract

This article redefines the concept of proximity governance and explains the determinants of internal control quality from the perspective of an informal institutional arrangement. Based on an internal network (chairman–chief executive officer geographical proximity), we examine the effects of proximity governance on internal control quality using the data of Chinese A-share listed companies from 2007 to 2013. We conclude that the geographical proximity has a negative impact on internal control quality and this effect is weaker in state-owned enterprises than in private enterprises. Further empirical evidence shows that the negative effect of the geographical proximity on internal control quality can be moderated if the company has an interlocking business network. This study enriches the research literature on internal governance in emerging markets and provides reference for management selection strategies and standards of internal control.

Suggested Citation

  • Junli Yu & Xin Jin & Shangkun Liang, 2017. "Does the geographical proximity between the chairman and the CEO affect internal control quality?," China Journal of Accounting Studies, Taylor & Francis Journals, vol. 5(3), pages 344-360, July.
    • Handle: RePEc:taf:rcjaxx:v:5:y:2017:i:3:p:344-360
    DOI: 10.1080/21697213.2017.1375638
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