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Examining the Factors of Corporate Frauds in Chinese A-share Listed Enterprises

Yingda Tang1, Chi Li2,3,*

1UCLA Anderson School of Management, Los Angeles, CA 90095, USA.

2Louis Vuitton China Ltd., Shanghai 200000, China.

3School of Business and Tourism Management, Yunnan University, Kunming 650500, Yunnan, China.

*Corresponding author: Chi Li

Published: 20 October 2023 How to cite this paper

Abstract

Using data from Chinese A-share listed enterprises from 2007 to 2023, this study employs a two-way fixed effects model to examine the effects of internal control quality, CEO duality, ownership concentration, and financial distress on corporate fraud. The benchmark results indicate that higher internal control quality mitigates the risk of corporate fraud, while CEO duality, ownership concentration, and financial distress increase this risk. Robustness checks utilizing lagged variables confirm these findings. Heterogeneity analysis reveals that in highly leveraged firms, CEO duality and ownership concentration significantly increase fraud risk, whereas internal control quality reduces this risk. In low-leveraged firms, internal control quality reduces fraud, and CEO duality and financial distress increase fraud risk. Analysis based on business cycle heterogeneity shows the importance of robust internal controls in both fast and slow cycles, with varied effects of CEO duality and ownership concentration. Industry analysis indicates that internal controls are crucial in both heavily and less polluted industries, with ownership concentration and financial distress having significant impacts in less polluted sectors. Policymakers should mandate stricter internal control requirements and regular audits to ensure compliance and effectiveness.

KEYWORDS: Corporate fraud, Internal control quality, CEO duality, Ownership concentration, Financial distress

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How to cite this paper

Yingda Tang, Chi Li. Examining the Factors of Corporate Frauds in Chinese A-share Listed Enterprises. OAJRC Social Science, 2023, 4(3), 63-77.


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