Abstract
China has adopted a gradual and experimental approach to the political and economic reform process since the late 1970s. The reforms continue to this day and have produced a unique corporate governance structure in China which can be viewed as an institutional innovation. This study deals with social changes and institutional innovations in China. We provide direct evidence on the association of corporate governance and financial fraud using a sample of Chinese listed firms, differing from previous studies that focused on western firms. We find that ownership structure, dual CEO/chairman of the directorate status, external auditors and regulators' requirements contribute to the likelihood of financial fraud. Specifically, when firms have less concentrated ownership, dual CEO/chairman of the directorate status and shorter audit service tenures, as well as when they experience greater regulation pressure, they tend to engage in financial fraud. However, we do not find evidence that the percentage of independent directors in the directorate, the presence of an audit committee or the proportion of shares owned by the supervisory board members play a role in deterring financial fraud. The evidence in this study offers insights into whether corporate governance is effective in the control of financial fraud in China.
Original language | English |
---|---|
Pages (from-to) | 309-320 |
Number of pages | 12 |
Journal | Technological Forecasting and Social Change |
Volume | 125 |
Early online date | 18 Jul 2017 |
DOIs | |
Publication status | Published - Dec 2017 |
Bibliographical note
The authors are indebted to Professor Fred Phillips, Professor Shikhar Sarin and anonymous reviewers for their many constructive insights and suggestions. This research is funded by MOE (Ministry of Education in China) Project of Humanities and Social Sciences (14YJC790149; 13YJA630014), the National Natural Science Foundation of China (71602010; 71572017; 71202029), Research and Study Project for Special Support Program of National Accounting Leading Talents Program, Beijing Social Science Research Foundation of China (15JGC144) and the Fundamental Research Funds for the Central Universities, Beijing Normal University, Beijing, China.Keywords
- Corporate governance
- Institutional innovation
- Social changes
- Financial fraud
- People's Republic of China