Untangling the relationship between government procurement and internal control quality: an empirical study in China

Based on the data from the Chinese Government Procurement Network, we find that government procurement contributes to the improvement of internal control quality, with this positive effect being more pronounced in non-state-owned enterprises and remaining robust across various tests. Therefore, the analysis focuses on the non-state-owned enterprises. The findings reveal that: (1) Compared to local procurement, cross-regional procurement has a more significant impact on internal control quality. (2) Government procurement enhances internal control quality through incentive and pressure mechanisms. (3) The effect of government procurement on internal control quality is significantly moderated by corporate risk. (4) As government dependence intensifies, the positive impact of government procurement on internal control quality gradually diminishes. These findings provide foundational insights into the influencing factors of internal control, offering crucial implications for reforming government procurement policies and fostering tangible economic development, particularly in developing countries.