Does the External Monitoring Effect of Financial Analysts Deter Corporate Fraud in China?
We examine whether analyst coverage influences corporate fraud in China. The fraud triangle specifies three main factors, i.e. opportunity, incentive, and rationalization. On the one hand, analysts may reduce the fraud opportunity factor through external monitoring aimed at discouraging managerial m...
| Published in: | Journal of business ethics |
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| Authors: | ; ; ; |
| Format: | Electronic Article |
| Language: | English |
| Check availability: | HBZ Gateway |
| Journals Online & Print: | Drawer...
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| Fernleihe: | Fernleihe für die Fachinformationsdienste |
| Published: |
Springer Science + Business Media B. V
2016
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| In: |
Journal of business ethics
Year: 2016, Volume: 134, Issue: 4, Pages: 727-742 |
| Further subjects: | B
Agency problem
B Fraud triangle B Analyst coverage B P37 B China B Corporate fraud B G32 |
| Online Access: |
Presumably Free Access Volltext (JSTOR) Volltext (lizenzpflichtig) |
| Summary: | We examine whether analyst coverage influences corporate fraud in China. The fraud triangle specifies three main factors, i.e. opportunity, incentive, and rationalization. On the one hand, analysts may reduce the fraud opportunity factor through external monitoring aimed at discouraging managerial misconduct, which can moderate agency problems. On the other hand, analysts may increase the fraud incentive factor by pressurizing managers to achieve short-term performance targets, which can exacerbate agency problem. In either case, the potential influence of analysts on the fraud rationalization factor may be more pronounced among firms that are more dependent on the capital market for corporate finance. Using a sample of Chinese listed firms, we show a negative association between corporate fraud propensity and analyst coverage, and that this effect is more pronounced among non-state-owned enterprises, which are more reliant on the stock market for external funding. These findings suggest that analyst coverage contributes to corporate fraud deterrence in emerging economies characterized by weak investor protection. The main policy implication is that further development of the analyst profession in emerging economies may benefit investors and strengthen business ethics. |
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| ISSN: | 1573-0697 |
| Contains: | Enthalten in: Journal of business ethics
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| Persistent identifiers: | DOI: 10.1007/s10551-014-2393-3 |