CEO Accountability for Corporate Fraud: Evidence from the Split Share Structure Reform in China

44 Pages Posted: 4 Feb 2014 Last revised: 11 Nov 2014

See all articles by Jiandong Chen

Jiandong Chen

Southwestern University of Finance and Economics

Douglas J. Cumming

Florida Atlantic University

Wenxuan Hou

University of Edinburgh - Business School; Shanghai Lixin University of Accounting and Finance

Edward Lee

University of Manchester - Alliance Manchester Business School

Multiple version iconThere are 3 versions of this paper

Date Written: November 1, 2014

Abstract

We use institutional-related theories and a unique natural experiment that enables an exogenous test of the influence of controlling shareholders on managerial accountability to corporate fraud. In China, prior to the Split Share Structure Reform (SSSR), state shareholders held restricted shares that could not be traded. This restriction mitigated state-owned enterprise controlling shareholders’ incentives to monitor managers. The data examined show the SSSR strengthens incentives of state-owned enterprise controlling shareholders to replace fraudulent management. Our findings support the view that economic incentives are important to promote corporate governance and deter fraud.

Keywords: CEO turnover; corporate fraud; ownership; Split Share Structure Reform; China

JEL Classification: G30, G38

Suggested Citation

Chen, Jiandong and Cumming, Douglas J. and Hou, Wenxuan and Lee, Edward, CEO Accountability for Corporate Fraud: Evidence from the Split Share Structure Reform in China (November 1, 2014). Journal of Business Ethics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2389658 or http://dx.doi.org/10.2139/ssrn.2389658

Jiandong Chen

Southwestern University of Finance and Economics ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

HOME PAGE: http://cjd.weebly.com

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Wenxuan Hou (Contact Author)

University of Edinburgh - Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

HOME PAGE: http://www.wenxuanhou.com

Shanghai Lixin University of Accounting and Finance ( email )

Edward Lee

University of Manchester - Alliance Manchester Business School ( email )

Booth St. West (Crawford House)
Manchester, M15 6PB
United Kingdom

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