Location: Home >> Examining the Factors of Corporate Frauds in Chinese A-share Listed Enterprises
TOTAL VIEWS
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.
Agrawal, A., & Chadha, S. (2005). Corporate governance and accounting scandals. The Journal of Law and Economics, 48(2), 371-406.
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277-297.
Ashbaugh-Skaife, H., Collins, D. W., & Kinney Jr, W. R. (2007). The discovery and reporting of internal control deficiencies prior to SOX-mandated audits. Journal of Accounting and Economics, 44(1-2), 166-192.
Bao, X., & Yu, B. (2023). The impact of environmental regulation on corporate financial performance: an empirical study from China. Environment, Development and Sustainability, 25(12), 15003-15023.
Beasley, M. S., Carcello, J. V., Hermanson, D. R., & Lapides, P. D. (2000). Fraudulent financial reporting: Consideration of industry traits and corporate governance mechanisms. Accounting Horizons, 14(4), 441-454.
Beasley, M. S., Hermanson, D. R., Carcello, J. V., & Neal, T. L. (2010). Fraudulent financial reporting: 1998-2007: An analysis of US public companies.
Beneish, M. D. (1999). The detection of earnings manipulation. Financial Analysts Journal, 55(5), 24-36.
Carcello, J. V., Hermanson, D. R., & Ye, Z. (2011). Corporate governance research in accounting and auditing: Insights, practice implications, and future research directions. Auditing: A Journal of Practice & Theory, 30(3), 1-31.
Chen, J., Cumming, D., Hou, W., & Lee, E. (2016). Does the external monitoring effect of financial analysts deter corporate fraud in China? Journal of Business Ethics, 134, 727-742.
Chen, L., & Lin, W. (2007). Corporate governance and fraud: Evidence from China. Corporate Ownership and Control, 4(3), 139-145.
Chen, X., Feng, M., & Li, C. (2020). Family entrenchment and internal control: Evidence from S&P 1500 firms. Review of Accounting Studies, 25, 246-278.
Chen, Z., Fu, C., & Tang, X. (2023). Multi-domain Fake News Detection with Fuzzy Labels. Paper presented at the International Conference on Database Systems for Advanced Applications.
Cheng, M., Dhaliwal, D., & Zhang, Y. (2013). Does investment efficiency improve after the disclosure of material weaknesses in internal control over financial reporting? Journal of Accounting and Economics, 56(1), 1-18.
Claessens, S., Djankov, S., & Lang, L. H. (2000). The separation of ownership and control in East Asian corporations. Journal of Financial Economics, 58(1-2), 81-112.
Cressey Donald, R. (1953). Others people money, A study in the social psychology of Embezzlement. Montclair: Patterson Smith.
Cumming, D., Hou, W., & Lee, E. (2016). Business ethics and finance in greater China: Synthesis and future directions in sustainability, CSR, and fraud. Journal of Business Ethics, 138, 601-626.
Daily, C. M., & Dalton, D. R. (1994). Bankruptcy and corporate governance: The impact of board composition and structure. Academy of Management Journal, 37(6), 1603-1617.
Dechow, P. M., Ge, W., Larson, C. R., & Sloan, R. G. (2011). Predicting material accounting misstatements. Contemporary Accounting Research, 28(1), 17-82.
DeFond, M. L., & Jiambalvo, J. (1991). Incidence and circumstances of accounting errors. Accounting Review, 643-655.
Dey, A. (2008). Corporate governance and agency conflicts. Journal of Accounting Research, 46(5), 1143-1181.
Du, S., Chen, Z., Wu, H., Tang, Y., & Li, Y. (2021). Image recommendation algorithm combined with deep neural network designed for social networks. Complexity, 2021(1), 5196190.
Faccio, M., Marchica, M.-T., & Mura, R. (2016). CEO gender, corporate risk-taking, and the efficiency of capital allocation. Journal of Corporate Finance, 39, 193-209.
Fahlenbrach, R., Low, A., & Stulz, R. M. (2010). Why do firms appoint CEOs as outside directors? Journal of Financial Economics, 97(1), 12-32.
Fan, J. P., & Wong, T. J. (2002). Corporate ownership structure and the informativeness of accounting earnings in East Asia. Journal of Accounting and Economics, 33(3), 401-425.
Firth, M., Rui, O. M., & Wu, W. (2011). Cooking the books: Recipes and costs of falsified financial statements in China. Journal of Corporate Finance, 17(2), 371-390.
Gam, Y. K., Gupta, P., Im, J., & Shin, H. (2021). Evasive shareholder meetings and corporate fraud. Journal of Corporate Finance, 66, 101807.
Ge, W., & McVay, S. (2005). The disclosure of material weaknesses in internal control after the Sarbanes‐Oxley Act. Accounting Horizons, 19(3), 137-158.
Hameed, A. (2013). A Financial and Quantitative relationship of debt, dividend and insider ownership. Journal of Business Strategies, 7(1), 43.
Hao, Y., Chen, Z., Jin, J., & Sun, X. (2023). Joint operation planning of drivers and trucks for semi-autonomous truck platooning. Transportmetrica A: Transport Science, 1-37.
Hilal, W., Gadsden, S. A., & Yawney, J. (2022). Financial fraud: a review of anomaly detection techniques and recent advances. Expert Systems with Applications, 193, 116429.
Ho, S. S., Li, A. Y., Tam, K., & Zhang, F. (2015). CEO gender, ethical leadership, and accounting conservatism. Journal of Business Ethics, 127, 351-370.
Hogan, C. E., Rezaee, Z., Riley Jr, R. A., & Velury, U. K. (2008). Financial statement fraud: Insights from the academic literature. Auditing: A Journal of Practice & Theory, 27(2), 231-252.
Hoitash, R., Hoitash, U., & Bedard, J. C. (2008). Internal control quality and audit pricing under the Sarbanes‐Oxley Act. Auditing: A Journal of Practice & Theory, 27(1), 105-126.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. the Journal of Finance, 48(3), 831-880.
Jensen, M. C., & Meckling, W. H. (2019). Theory of the firm: Managerial behavior, agency costs and ownership structure. In Corporate governance (pp. 77-132): Gower.
Jones, J. J. (1991). Earnings management during import relief investigations. Journal of Accounting Research, 29(2), 193-228.
Kerr, D. S., & Murthy, U. S. (2013). The importance of the CobiT framework IT processes for effective internal control over financial reporting in organizations: An international survey. Information & Management, 50(7), 590-597.
Kong, D., Xiang, J., Zhang, J., & Lu, Y. (2019). Politically connected independent directors and corporate fraud in China. Accounting & Finance, 58(5), 1347-1383.
Kong, T., Sun, R., Sun, G., & Song, Y. (2022). Effects of digital finance on green innovation considering information asymmetry: An empirical study based on Chinese listed firms. Emerging Markets Finance and Trade, 58(15), 4399-4411.
Krishnan, J. (2005). Audit committee quality and internal control: An empirical analysis. The Accounting Review, 80(2), 649-675.
Kuang, Y. F., & Lee, G. (2017). Corporate fraud and external social connectedness of independent directors. Journal of Corporate Finance, 45, 401-427.
La Porta, R., Lopez‐de‐Silanes, F., & Shleifer, A. (1999). Corporate ownership around the world. the Journal of Finance, 54(2), 471-517.
Larcker, D. F., Richardson, S. A., & Tuna, I. R. (2007). Corporate governance, accounting outcomes, and organizational performance. The Accounting Review, 82(4), 963-1008.
Lei, J. (2022). Efficient Strategies on Supply Chain Network Optimization for Industrial Carbon Emission Reduction. Journal of Computational Methods in Engineering Applications, 1-11.
Lennox, C. S., & Pittman, J. (2008). Big five audits and accounting fraud. Available at SSRN 1137829.
Lin, T., Hutchinson, M., & Percy, M. (2015). Earnings management and the role of the audit committee: an investigation of the influence of cross-listing and government officials on the audit committee. Journal of Management & Governance, 19, 197-227.
Lins, K. V., Servaes, H., & Tamayo, A. (2017). Social capital, trust, and firm performance: The value of corporate social responsibility during the financial crisis. The Journal of Finance, 72(4), 1785-1824.
Meckling, W. H., & Jensen, M. C. (1976). Theory of the Firm. Managerial Behavior, Agency Costs and Ownership Structure.
Morck, R., Shleifer, A., & Vishny, R. W. (1988). Management ownership and market valuation: An empirical analysis. Journal of Fi-nancial Economics, 20, 293-315.
Palmrose, Z.-V., Richardson, V. J., & Scholz, S. (2004). Determinants of market reactions to restatement announcements. Journal of accounting and economics, 37(1), 59-89.
Qiu, Y. (2017). Financial Deepening and Economic Growth in Select Emerging Markets with Currency Board Systems: Theory and Evidence.
Qiu, Y. (2019). Estimation of Tail Risk Measures in Finance: Approaches to Extreme Value Mixture Modeling. Johns Hopkins University.
Rosner, R. L. (2003). Earnings manipulation in failing firms. Contemporary Accounting Research, 20(2), 361-408.
Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. the Journal of Finance, 52(2), 737-783.
Shleifer, A., & Vishny, R. W. (2010). Asset fire sales and credit easing. American Economic Review, 100(2), 46-50.
Skousen, C. J., Smith, K. R., & Wright, C. J. (2009). Detecting and predicting financial statement fraud: The effectiveness of the fraud triangle and SAS No. 99. In Corporate governance and firm performance (pp. 53-81): Emerald Group Publishing Limited.
Su, F., Feng, X., & Tang, S. (2021). Do site visits mitigate corporate fraudulence? Evidence from China. International Review of Financial Analysis, 78, 101940.
Sun, J., Liu, G., & Lan, G. (2011). Does female directorship on independent audit committees constrain earnings management? Journal of Business Ethics, 99, 369-382.
Sun, N., Salama, A., Hussainey, K., & Habbash, M. (2010). Corporate environmental disclosure, corporate governance and earnings management. Managerial Auditing Journal, 25(7), 679-700.
Sun, Y., Sun, X., & Wu, W. (2021). Who detects corporate fraud under the thriving of the new media? Evidence from Chinese‐listed firms. Accounting & Finance, 61, 1313-1343.
Suyanto, S. (2009). Fraudulent financial statement: evidence from statement on auditing standard no. 99. Gadjah Mada International Journal of Business, 11(1), 117-144.
Wang, Y., Yu, M., & Gao, S. (2022). Gender diversity and financial statement fraud. Journal of Accounting and Public Policy, 41(2), 106903.
West, K. D., Wong, K.-f., & Anatolyev, S. (2009). Instrumental variables estimation of heteroskedastic linear models using all lags of instruments. Econometric Reviews, 28(5), 441-467.
Wooldridge, J. M., Wadud, M., & Lye, J. (2016). Introductory econometrics: Asia pacific edition with online study tools 12 months: Cengage AU.
Xiong, S., Chen, X., & Zhang, H. (2023). Deep Learning-Based Multifunctional End-to-End Model for Optical Character Classification and Denoising. Journal of Computational Methods in Engineering Applications, 1-13.
Xiong, S., Zhang, H., Wang, M., & Zhou, N. (2022). Distributed Data Parallel Acceleration-Based Generative Adversarial Network for Fingerprint Generation. Innovations in Applied Engineering and Technology, 1-12.
Xu, Y., Zhang, L., & Chen, H. (2018). Board age and corporate financial fraud: An interactionist view. Long Range Planning, 51(6), 815-830.
Zeng, H., Yang, L., & Shi, J. (2021). Does the supervisory ability of internal audit executives affect the occurrence of corporate fraud? Evidence from small and medium-sized listed enterprises in China. International Journal of Accounting & Information Management, 29(1), 1-26.
Zhao, F., Yu, F., Trull, T., & Shang, Y. (2023). A new method using LLMs for keypoints generation in qualitative data analysis. Paper presented at the 2023 IEEE Conference on Artificial Intelligence (CAI).
Zhou, W., & Kapoor, G. (2011). Detecting evolutionary financial statement fraud. Decision Support Systems, 50(3), 570-575.
Yingda Tang, Chi Li. Examining the Factors of Corporate Frauds in Chinese A-share Listed Enterprises. OAJRC Social Science, 2023, 4(3), 63-77.
Copyright © 2022 Damray Co., Ltd. Privacy Policy | Terms and Conditions