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Delisting pressure, executive compensation, and corporate fraud: Evidence from China

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Listed:
  • Zhou, Fangzhao
  • Zhang, Zenan
  • Yang, Jun
  • Su, Yunpeng
  • An, Yunbi

Abstract

This paper studies the relationship between executive compensation and the incidence of corporate fraud in Chinese listed companies from the perspective of delisting pressure. We find that delisting pressure directly contributes to the incidence of fraud, especially the incidence of information disclosure violations, given the unique listing and delisting systems in the Chinese stock market. We also find that CEOs and CFOs with relatively low pay are more likely to commit fraud, regardless of whether or not delisting pressure is present. However, delisting pressure weakens the negative relationship between executive pay and the likelihood of corporate fraud. Finally, when equity incentives are also considered, the effect of CEOs' total compensation on fraud is contingent on delisting pressure. High CEOs' total compensation has a deterring effect on fraud for firms with no delisting pressure, while this effect disappears for firms with delisting pressure.

Suggested Citation

  • Zhou, Fangzhao & Zhang, Zenan & Yang, Jun & Su, Yunpeng & An, Yunbi, 2018. "Delisting pressure, executive compensation, and corporate fraud: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 17-34.
    • Handle: RePEc:eee:pacfin:v:48:y:2018:i:c:p:17-34
    DOI: 10.1016/j.pacfin.2018.01.003
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    6. Nadiah Amirah Nor Azhari & Suhaily Hasnan & Zuraidah Mohd Sanusi, 2020. "The Relationships Between Managerial Overconfidence, Audit Committee, CEO Duality and Audit Quality and Accounting Misstatements," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(3), pages 18-30, June.
    7. Liang, Quanxi & Gao, Wenlian & Xie, Hongji, 2022. "Do foreign investors deter corporate fraud? Evidence from China," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 92-111.
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    10. Liuyang Ren & Xi Zhong & Liangyong Wan, 2022. "Missing Analyst Forecasts and Corporate Fraud: Evidence from China," Journal of Business Ethics, Springer, vol. 181(1), pages 171-194, November.
    11. Shouyu Yao & Zhuoqun Wang & Mengyue Sun & Jing Liao & Feiyang Cheng, 2020. "Top executives’ early‐life experience and financial disclosure quality: impact from the Great Chinese Famine," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 60(5), pages 4757-4793, December.
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    14. Liao, Jing & Smith, David & Liu, Xutang, 2019. "Female CFOs and accounting fraud: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 449-463.
    15. Han, Han & Zhao, Xueqing & Wang, Zhibin, 2023. "The effect of stock pledge on corporate fraudulence: Evidence from China," Finance Research Letters, Elsevier, vol. 57(C).
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    More about this item

    Keywords

    Delisting pressure; Corporate fraud; Executive compensation;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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