Foreign Residency Rights and Corporate Frauds

47 Pages Posted: 15 Aug 2013

See all articles by Donghua Chen

Donghua Chen

Nanjing University

Yinying Chen

Nanjing University

Oliver Zhen Li

National University of Singapore (NUS)

Chenkai Ni

Fudan University

Date Written: August 14, 2013

Abstract

We examine whether Chinese firms whose controlling persons have foreign residency rights are more likely to engage in corporate frauds. We find a positive association between foreign residency rights and the probability of corporate frauds. However, foreign residency rights are mainly associated with less severe forms of frauds. Additional analyses show that strong corporate governance mitigates the association between foreign residency rights and corporate frauds. Extradition agreements between China and controlling persons’ residency countries do not deter their propensity for fraudulent activities. Finally, controlling persons with residency rights in countries with better institutions are more likely to engage in corporate frauds. Our study can help investors better assess firms based on controlling persons’ residency information. It also suggests that Chinese regulators should pay attention to potential culprits with foreign residency rights and that foreign governments should exercise caution when granting residency status.

Keywords: corporate frauds, foreign residency rights, corporate governance, China

Suggested Citation

Chen, Donghua and Chen, Yinying and Li, Oliver Zhen and Ni, Chenkai, Foreign Residency Rights and Corporate Frauds (August 14, 2013). Available at SSRN: https://ssrn.com/abstract=2310426 or http://dx.doi.org/10.2139/ssrn.2310426

Donghua Chen

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

Yinying Chen

Nanjing University ( email )

Nanjing, Jiangsu 210093
China

Oliver Zhen Li (Contact Author)

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

Chenkai Ni

Fudan University ( email )

Guoshun Road 670
Yangpu
Shanghai, Shanghai 200433
China

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