Intervention of large shareholders and corporate fraud Evidence from vertical interlock in corporate pyramids in an emerging economy

Event details

Abstract

We test what effect large shareholders exhibit on vertical interlock in corporate pyramids to corporate fraud behaviours. Through using 18,211 firm-year observations of all the Chinese A-share listed firms from 2008 to 2016 as a sample, we document that firms with vertical interlock have a lower likelihood of committing corporate fraud. The finding is robust to a battery of tests. We further test the underlying mechanisms, and we find that the effect of vertical interlock on the occurrence of corporate fraud is more pronounced when firms operate in a region with poor legal protection; with legal environment being enhanced in China, the effect of vertical interlock has become less significant; and the effect of vertical interlock is also more pronounced when firms exhibit poor information environment in the firm level. Our results in this paper imply that the role of large shareholders and legal protection are substitutes in an emerging economy, and even with rapid economic and legal development in China, large shareholders keep playing a positive role in controlling fraudulent behaviours in Chinese listed firms.

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The event is in hybrid format. If you are interested in joining virtually, please contact Dr Jacqueline You. 

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School for Business and Society - People, Operations and Marketing

School for Business and Society - International Partnerships

About the speaker

Dr Dan Yang

Dr Dan Yang is an Associate Professor in Accounting and the Director of MPAcc (Master of Professional Accounting) program at Business School, Beijing Normal University, China. She got her PhD degree from University of Aberdeen, UK. She used to work as a research assistant at ESSEC Business School, France, and was also a visiting scholar at Harvard University, US. Her main research interests are accounting information, accounting standards, corporate finance and corporate governance. She has published academic papers in international journals such as International Review of Financial Analysis, Abacus, European Financial Management, and Corporate Governance: An International Review.