Abstract: Internal auditing can review and evaluate the effectiveness of an organization's business activities and control processes with the assurance and consulting services, and it is also a mechanism that helps maintain a balanced fiduciary duty relationship between shareholders and the management. However, due to the lack of data, studies on internal auditing mainly focus on analyzing its confirmatory function on the financial report quality, while providing limited evidence on enhancing corporate governance through internal auditing mechanisms. Promoting the effectiveness of executive contracts can alleviate agency problems in firms, and the sensitivity of compensation and performance is a critical issue in the design of compensation contracts. The management has greater motivation and ability to intervene in the compensation setting process with its power, making it difficult to achieve a fully effective compensation contract. High-quality internal auditing can support the development of reasonable and effective executive compensation policies, but the issue related to whether and how internal auditing mechanism enhances the effectiveness of executive compensation contracts has not been empirically studied.
Based on the above analysis, this article uses the Chinese A-share listed Centrally-administered State-owned enterprises (Central SOEs) from 2014 to 2017 as the sample to investigate the impacts of internal auditing on executive compensation contracts. It finds that more internal auditing resources invested, project activities, and feedback can increase the sensitivity of executive compensation and performance, and this relationship is more pronounced in the firms with weaker external audit supervision and stronger management power. Furthermore, the level of management's excessive salary and the pay gap between the management and ordinary employees are negatively associated with the quality of internal auditing, suggesting that internal auditing can help achieve the goal of pay regulation. However, internal auditing cannot significantly reduce the stickiness of executive compensation. The findings support that internal audit's supervision function over the entire process promotes a more rationalized remuneration system in SOEs.
The contributions of this article are as follows. Firstly, the paper reveals the governance role of internal auditing in improving the effectiveness of compensation contracts, responding to the demand for internal auditing research from theoretical and practical fields. Secondly, this article explores the function of internal auditing in three dimensions, and contributes to a better understanding of internal auditing mechanism over the entire process. Thirdly, this article extends the emerging literature on factors influencing executive compensation contracts based on the analysis of internal auditing. Fourthly, the findings of this paper have certain public policy and practice implications. This research implies that high-quality internal auditing can improve the efficiency of supervision over executives in SOEs and provides practical suggestions to facilitate the evaluation and incentive mechanism, promoting the high-quality development orientation in SOEs.

Key words: Internal Auditing, Executive Compensation Contract, Pay-Performance Sensitivity, Central SOEs, Supervision over the Entire Process

摘要： 本文以2014—2017年我国A股上市中央企业为样本,基于内部审计全流程监督视角,从事前、事中、事后三个维度检验了内部审计对高管薪酬契约的影响。结果发现,内部审计事前资源投入、事中项目活动和事后意见反馈越多,高管薪酬业绩敏感性越高。进一步地,当外部审计监督力较弱、管理层权力较大时,内部审计对高管薪酬业绩敏感性的影响更加显著。此外,高质量的内部审计有助于降低管理层的超额薪酬与内部薪酬差距,反映了内部审计通过抑制高管过高薪酬有助于实现薪酬管制目标,然而,内部审计对降低高管薪酬粘性的作用较为有限。研究结果揭示了内部审计全过程监督对推动国有企业高管薪酬契约合理化的作用,丰富了内部审计发挥治理功能的相关研究。

关键词: 内部审计, 高管薪酬契约, 薪酬业绩敏感性, 中央企业, 全流程监督