Board of directors’ internationalization, internal control quality, and corporate litigation risk

Chuyun Wang, Lingxing Meng, Lei Li and Ziyun Zhao

Finance Research Letters, 2025, vol. 76, issue C

Abstract: This study focuses on Chinese listed companies from 2010 to 2022 to analyze the interaction between board internationalization, internal control quality, and corporate litigation risk. Utilizing panel regression analysis and controlling for various firm-level characteristics, including firm size, age, loss status, audit by the Big Four accounting firms, and business stability, along with heterogeneity analysis, moderation effects, and threshold effects, the findings reveal that heightened board internationalization correlates with firms’ elevated litigation risk, whereas enhanced internal control quality mitigates such risk. Notably, the influence of board internationalization on litigation risk varies significantly across firms with differing ownership structures. Specifically, compared with firms that are audited by the prestigious Big Four accounting firms, those not audited by them demonstrate a more pronounced effect of board internationalization on litigation risk. Furthermore, internal control quality functions as a beneficial moderator in the relationship between board internationalization and corporate litigation risk, exhibiting a threshold effect, wherein internal controls are progressively strengthened, the impact of board internationalization on corporate litigation risk transitions from detrimental to beneficial. These findings contribute to the theoretical understanding of corporate governance, internal control, and legal risk, providing valuable insights for researchers, professionals, and policymakers.

Keywords: Board internationalization; Internal control quality; Corporate litigation risk; Threshold effect (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:76:y:2025:i:c:s1544612325002582

DOI: 10.1016/j.frl.2025.106994

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