Financial fraud and corporate financing capacity: The moderating effect of institutional environment and economic policy uncertainty

Corporate financing constraints remain a significant challenge, especially for small and medium-sized enterprises. While financial fraud is common, its impact on financing behavior is underexplored. Existing research primarily focuses on its negative effects, with little attention given to whether it might alleviate financing constraints or how this relationship varies across different institutional and policy contexts. Using panel data from A-share listed companies between 2009 and 2023, this study finds that financial fraud significantly reduces financing constraints, with the strongest effect observed in firms facing lower constraints. However, as financing constraints increase, the effect weakens, revealing a nonlinear pattern. Institutional environments, particularly regulatory pressures, play a key moderating role, as stronger compliance and regulatory environments reduce the alleviating effect of financial fraud. In addition, economic policy uncertainty dampens this relationship, while heightened political economic uncertainty tends to strengthen it, suggesting that different forms of macro-level uncertainty influence corporate financing behavior in distinct ways. These findings shed light on the complex role of financial fraud in corporate financing, offering valuable policy implications for balancing regulatory oversight with the financing needs of firms across varied institutional settings.