INTERNAL AUDIT'S TRANSFORMATIVE ROLE IN SHAPING CORPORATE FINANCIALIZATION"

Abstract

The evolution of internal audit in China, following the 19th National Congress, has elevated its role within the national audit and social audit systems, forming a comprehensive audit supervision framework within the Party and state systems. The "Regulations of the National Audit Office on Internal Audit Work" (revised in January 2018) marked a pivotal moment by expanding the role of internal audit beyond mere control to encompass advisory and consultative functions. This shift emphasized the significance of offering guidance alongside the traditional supervisory and evaluative roles, and underscored the importance of addressing and implementing solutions to identified issues. Internal audit has transitioned from a straightforward control mechanism to a value-driven asset for facilitating high-quality development.

Enterprises' motivations for holding financial assets can be categorized into preventive savings motivation, aimed at mitigating operational risks and averting capital shortfalls through high-liquidity financial assets, and speculative motivation, focused on allocating resources to virtual assets for arbitrage and short-term returns. Existing research has examined various factors influencing corporate financialization, such as economic uncertainty, stock market liberalization, labor costs, government subsidies, mixed ownership, and investment return dynamics. However, limited attention has been paid to the impact of internal auditing on corporate financialization.

This study addresses this gap by investigating the influence of internal audits on the financialization of state-owned enterprises in Beijing between 2019 and 2021, shedding light on the underlying mechanisms of this relationship.