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Multiple large shareholders and corporate fraud: evidence from China

Author

Listed:
  • Xibo Zhao

    (Renmin University of China)

  • Dan Yang

    (Renmin University of China)

  • Zhengguang Li

    (Yancheng Institute of Technology)

  • Lynda Song

    (University of Leeds)

Abstract

This study tests the effect of multiple large shareholders on the level of corporate fraud using the data of Chinese listed companies from 2010 to 2018. We find lower probabilities and lower corporate fraud frequencies when there are multiple large shareholders in Chinese listed companies, indicating that their presence plays a supervisory role in internal governance. These results persist after we control for endogeneity. Moreover, the effect of multiple large shareholders on corporate fraud is strengthened with the separation of control right and cash flow right. Further analyses reveal that companies with multiple large shareholders experience considerably reduced information disclosure fraud but no reduction in operating or leader frauds. Additionally, information asymmetry and the capital occupation of controlling shareholders both play a mediating role in the relationship between multiple large shareholders and the level of corporate fraud. This study enriches the literature on the determinants of corporate fraud and the effects of multiple large shareholders. Our findings also provide implications for companies and regulators regarding ways to reduce fraud.

Suggested Citation

  • Xibo Zhao & Dan Yang & Zhengguang Li & Lynda Song, 2021. "Multiple large shareholders and corporate fraud: evidence from China," Frontiers of Business Research in China, Springer, vol. 15(1), pages 1-21, December.
    • Handle: RePEc:spr:fobric:v:15:y:2021:i:1:d:10.1186_s11782-021-00106-9
    DOI: 10.1186/s11782-021-00106-9
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    1. Donghua Chen & Xuerui Wei & Huimin Wang, 2022. "Controlling shareholder’s ownership, control rights and related-party transactions – analysis of regulatory effects based on board characteristics," International Entrepreneurship and Management Journal, Springer, vol. 18(4), pages 1577-1604, December.

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