Do the pros of succession outweigh the cons? Evidence from the fraud of Chinese family-listed firms

This paper investigates how leadership succession affects corporate fraud in family-listed firms. Using a panel of Chinese A-share family firms from 2007 to 2023, we find that succession significantly reduces both the probability and frequency of corporate violations. This result remains robust to alternative specifications designed to address potential endogeneity concerns. Drawing on fraud triangle theory, we demonstrate that succession curbs fraud through weakening managerial motivation, limiting opportunities via stronger internal controls and external supervision, and narrowing the scope for self-justification. The effects are more pronounced among older successors, firms located outside western China, and regions with higher social trust. We further show that fraud reduction substantially lowers operational risk and enhances firms' long-term financing capacity. Our findings extend fraud triangle theory to succession dynamics and highlight family succession as an endogenous governance mechanism that promotes organizational self-correction.