An Entropy Testing Model Research on the Quality of Internal Control and Accounting Conservatism: Empirical Evidence from the Financial Companies of China from 2007 to 2011

Table 2

Variable definitions¹.

Variable	Variable definitions
ACCRUAL	Net income before extraordinary items minus operating cash flows for firm 𝑖 in fiscal year 𝑡 deflated by beginning-of-year total assets
CFO	Operating cash flows at the end of the fiscal year deflated by beginning-of-year total assets
DCFO	If CFO≥0, DCFO equals 0, 1 otherwise
ΔNI𝑡	Change in net income before extraordinary items for firm 𝑖 in fiscal year 𝑡 deflated by beginning-of-year total assets
DΔNI𝑡−1	If ΔNI𝑡−1≥0, DΔNI𝑡−1 equals 0, 1 otherwise
ICQ	Calculated by the entropy method, and the smaller the ICQ is, the better the quality of internal control will be
HLIC	If the quality of internal control gets better this year than the year before, then HLIC equals 0, 1 otherwise
STR	Control variable: the difference between control power and the proprietary rights
LEV	Control variable: the asset-liability ratio
SIZE	Control variable: natural log of the total assets at the end of the fiscal year 𝑡

1If there is no footnote for the variable, it all indicates that the value refers to the current year.