“Conniving” or “controlling”: How does banking competition impact private enterprise violations?

Abstract

This study examines the impact of banking competition on private enterprise violations, using a sample of A-share listed private enterprises in China from 2011 to 2021. The study found that the increased level of banking competition is conducive to the realization of the capital and the supervisory effects that banks are supposed to have, which, in turn, have a “controlling” effect on private enterprise violations. Banking competition has yet to fulfil its potential “conniving” effects, which is closely related to China's high level of financial regulation. In addition, based on the Fraud Triangle Theory, the study found that the financial accounting background of managers is an important factor influencing the tendency for “rationalization”. In other words, the disincentive effect of banking competition on violations is stronger when a relatively lower proportion of management has a financial accounting background.