The Effect of Internal Control Weakness on Credit in Small and Medium Enterprises

Xiaoyi Zhang^1,

¹Economics and Management Department, Shanxi University, Taiyuan, China

Cite this paper:
Xiaoyi Zhang. The Effect of Internal Control Weakness on Credit in Small and Medium Enterprises. Journal of Finance and Accounting. 2022; 10(1):28-32. doi: 10.12691/jfa-10-1-5

Abstract

High internal control is the cornerstone of an enterprise’s development. It is worth noticing that as Small and Medium Enterprises (SMEs) have received attention along their development, their internal control weakness has had a significant impact on enterprises’ credit. Starting from SMEs’ current state of internal control, this paper selects SMEs in manufacturing industry from 2017 to 2020 as a sample, draws forth weakness and their influences that existed in internal control among which difficulty in credit stands out as a major problem, and finally looks into direct effect of internal control on an enterprise’s credit. In the research, the degree of lack of internal control is determined as the independent variable, and status of credit is determined as the dependent variable. The paper has measured the data set with standard indicators, and has filtered and analyzed data. As the result the paper draws the conclusion that the quality of internal control is strongly related to credit in SMEs, and the low quality inflicts a series of problems, that is, investors of SMEs are hesitant to lend due to the imbalance of information and lack of trust from banks; consequently, SMEs suffer a setback due to this lack of lending. The more serious the internal control problem is, the more financial burdens SMEs have to bear. At the same time, an enterprise can ease the financial difficult by rectification but cannot completely solve the problem.

Keywords:
SME internal control weakness credit financing costs

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