Do Ownership Structure and Governance Mechanisms Have an Effect on Corporate Fraud in China's Listed Firms?

40 Pages Posted: 26 May 2005

See all articles by Gong-meng Chen

Gong-meng Chen

Hong Kong Polytechnic University - School of Accounting and Finance

Michael Firth

Lingnan University - Department of Finance and Insurance

Ning Daniel Gao

Hong Kong Polytechnic University - School of Accounting and Finance

Oliver M. Rui

China Europe International Business School (CEIBS)

Date Written: January 2005

Abstract

Our study examines whether ownership structure and boardroom characteristics have an effect on corporate financial fraud in China. The data come from the enforcement actions of the Chinese Securities Regulatory Commission (CSRC). The results from univariate analyses, where we compare fraud and no-fraud firms, show that ownership and board characteristics are important in explaining fraud. However, using a bivariate probit model with partial observability we demonstrate that boardroom characteristics are important, while the type of owner is less relevant. In particular, the proportion of outside directors, the number of board meetings, and the tenure of the chairman are associated with the incidence of fraud. Our findings have implications for the design of appropriate corporate governance systems for listed firms. Moreover, our results provide information that can inform policy debates within the CSRC.

Keywords: Ownership, corporate governance, fraud, China's enforcement actions

Suggested Citation

Chen, Gong-meng and Firth, Michael and Gao, Ning Daniel and Rui, Oliver M., Do Ownership Structure and Governance Mechanisms Have an Effect on Corporate Fraud in China's Listed Firms? (January 2005). Available at SSRN: https://ssrn.com/abstract=728945 or http://dx.doi.org/10.2139/ssrn.728945

Gong-meng Chen

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong
+852 2766 7070 (Phone)

Michael Firth

Lingnan University - Department of Finance and Insurance ( email )

Castle Peak Road
Tuen Mun, New Territories
Hong Kong
China
+852 2616 8160 (Phone)
+852 2466 4751 (Fax)

Ning Daniel Gao

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M715, Li Ka Shing Tower
Hung Hom, Kowloon, Kowloon
Hong Kong

Oliver M. Rui (Contact Author)

China Europe International Business School (CEIBS) ( email )

699 Hong Feng Road
Pudong
Shanghai 201206
China
86-21-28905618 (Phone)
86-21-28905620 (Fax)

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