This paper investigates the association between information technology (hereafter IT) investment and internal control effectiveness based on the questionnaire survey of internal control among listed firms, which is conducted by China Securities Regulatory Commission in year 2014. The empirical results show that IT investment is significantly and positively associated with internal control effectiveness. And this positive association is more pronounced when the IT-business strategy alignment is higher or executives’ IT-use is more frequent. Additionally, we find that IT improves the effectiveness of internal control mainly by enhancing the efficiency of internal monitoring, which is one of the five components of internal control. Considering the effect of state ownership, we further document that the effect of IT investment on internal control effectiveness can only be held in non-state owned enterprises. Overall, our results indicate that IT investment can improve internal control effectiveness. Moreover, “well adaptation” between IT and business process as well as human resources can better enhance internal control and protect the interests of stakeholders.
Keywords: IT investment, IT-business strategy alignment, internal control
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