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Journal of Business Ethics

, Volume 138, Issue 4, pp 723–742 | Cite as

Equity Incentives and Corporate Fraud in China

  • Lars Helge HassEmail author
  • Monika Tarsalewska
  • Feng Zhan
Article

Abstract

This paper explores how managers’ and supervisors’ equity incentives impact the likelihood of committing corporate fraud in Chinese-listed firms. Previous research has shown that corporate fraud in China is a widespread phenomenon and has severe consequences for affected firms and executives. However, our understanding of the reasons that fraud is committed in a Chinese setting has been very limited thus far. This is an increasingly important topic, because corporate governance is rapidly changing in China, and it is unclear whether adopting the executive compensation practices of the West is appropriate for Chinese firms. We show that managers’ equity incentives increase their propensity to commit corporate fraud. We also find that this effect is more pronounced for state-owned firms. However, we find a negative but not significant relationship between the equity incentives of the supervisory board and the incidence of fraud.

Keywords

Equity incentives Corporate fraud Corporate governance Ownership structure Chinese economy 

Notes

Acknowledgments

The authors gratefully acknowledge valuable feedback from the guest editors, Douglas Cumming, Wenxuan Hou, Edward Lee, two anonymous referees, Oliver Rui (discussant), participants at the Conference on Business Ethics in Greater China: Past, Present, and Future, and seminar participants at the Warsaw School of Economics.

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Copyright information

© Springer Science+Business Media Dordrecht 2015

Authors and Affiliations

  • Lars Helge Hass
    • 1
    Email author
  • Monika Tarsalewska
    • 2
  • Feng Zhan
    • 3
  1. 1.Lancaster University Management SchoolLancaster UniversityLancasterUK
  2. 2.University of Exeter Business SchoolExeterUK
  3. 3.Boler School of BusinessJohn Carroll UniversityUniversity HeightsUSA

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