Abstract

This study examines the impact of internal control quality on corporate underinvestment from the perspective of dynamic development at different stages of life cycle, based on the sample of Chinese listed companies. I show that: at the growing stage, corporate underinvestment is mainly caused by financing constraints, at the maturity stage and recession stage, corporate underinvestment is caused by financing constraints and different kinds of agency conflicts. I also find that at different stages of life cycle, the impact of internal control quality on underinvestment is different. At the growing stage，the impact of internal control quality on underinvestment is not significant, at the maturity stage, high quality internal control can inhibit underinvestment significantly, at the recession stage, only in non state-owned company, internal control can inhibit underinvestment significantly, in state-owned company, the relationship is not significant.

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