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How boards’ factional faultlines affect corporate financial fraud

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Abstract

In the corporate governance literature, it has been long debated on whether boards can effectively monitor executives’ behavior. Drawing on the factional faultlines research, this study proposes that the greater the magnitude of the faultline between inside and outside directors, the lower the likelihood of corporate financial fraud; this effect is weaker when outside directors sit on more other boards. An analysis of a sample of Chinese publicly-listed firms for 2003–2015 renders support to our predictions. Our results are robust for various model specifications and alternative measures of key variables. The implications of our findings to the corporate governance and faultline literatures are discussed.

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Notes

  1. For further details, see http://www.csrc.gov.cn/pub/newsite/flb/flfg/bmgf/ssgs/gszl/201012/t20101231_189696.html

  2. For further details, see http://www.csrc.gov.cn/pub/newsite/flb/flfg/bmgf/ssgs/gszl/201012/t20101231_189696.html

  3. http://www.csrc.gov.cn/pub/newsite/flb/flfg/bmgf/ssgs/gszl/201012/t20101231_189696.html

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Funding

This work was supported by the National Natural Science Foundation of China (No. 72172075, 71772159, 72102226, 71772158) and Innovation Research Institute of Shandong Hi-Speed Group (SDGS-YJYKJ-2021-10).

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  1. Business School, Sun Yat-Sen University, Guangzhou, China

    Shan Xue

  2. HKU Business School, University of Hong Kong, Hong Kong, China

    Yi Tang

  3. School of Management, Shandong University, Jinan, China

    Yuehua Xu

  4. Business School, Renmin University of China, Beijing, China

    Chu-Ding Ling

  5. School of Management, Zhejiang University, Hangzhou, China

    Xiao-Yun Xie & Shenjiang Mo

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Xue, S., Tang, Y., Xu, Y. et al. How boards’ factional faultlines affect corporate financial fraud. Asia Pac J Manag 41, 351–376 (2024). https://doi.org/10.1007/s10490-022-09859-0

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