Bank Monitoring and Corporate Fraud: Evidence from a Natural Experiment

64 Pages Posted: 10 Nov 2014 Last revised: 29 Apr 2018

See all articles by Minwen Li

Minwen Li

Tsinghua Universitiy - School of Economics and Management

Tanakorn Makaew

Securities and Exchange Commission (SEC)

Andrew Winton

University of Minnesota - Twin Cities - Carlson School of Management; Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF)

Date Written: APRIL 23, 2018

Abstract

We study how bank monitoring affects corporate fraud in China. Financial We study how bank monitoring affects corporate fraud in China. Financial misreporting is less prevalent in provinces with more developed banking sectors. A natural experiment using the staggered liberalization of the banking sector after China’s accession to WTO supports the causal effect of bank monitoring on misreporting fraud. The reduction in fraud after liberalization is greater among clients of foreign banks, but fraud also drops among domestic borrowers, consistent with a spillover effect. The decrease is concentrated among firms whose ratio of long-term to total loans increases. In addition, we find that bank monitoring reduces the frequency of tunneling.

Keywords: corporate securities fraud, misreporting, tunneling, bank monitoring

JEL Classification: G34, G38, G15, O16, K40

Suggested Citation

Li, Minwen and Makaew, Tanakorn and Winton, Andrew, Bank Monitoring and Corporate Fraud: Evidence from a Natural Experiment (APRIL 23, 2018). Available at SSRN: https://ssrn.com/abstract=2521151 or http://dx.doi.org/10.2139/ssrn.2521151

Minwen Li

Tsinghua Universitiy - School of Economics and Management ( email )

324 Weilun Building
nagement
Beijing, 100084
China
(86)10-62793685 (Phone)

Tanakorn Makaew (Contact Author)

Securities and Exchange Commission (SEC) ( email )

450 Fifth Street, NW
Washington, DC 20549-1105
United States

Andrew Winton

University of Minnesota - Twin Cities - Carlson School of Management ( email )

321 19th Avenue South
Department of Finance
Minneapolis, MN 55455
United States
612-624-0589 (Phone)
612-626-1335 (Fax)

Shanghai Jiao Tong University (SJTU) - Shanghai Advanced Institute of Finance (SAIF) ( email )

Shanghai Jiao Tong University
211 West Huaihai Road
Shanghai, 200030
China

Register to save articles to
your library

Register

Paper statistics

Downloads
292
rank
101,383
Abstract Views
1,472
PlumX Metrics