Dynamic Equilibrium Between Equity Control and Residual Control: Impact on Corporate Fraud and Innovation

Abstract

ABSTRACT Considering actual company controllers’ controlling rights, we analyze the fraud—governance role and innovation consequence, finding that the equity control right significantly inhibits company fraud’s different types and severity. However, digital transformation, personal motivations, and external regulations weaken this relationship. Interest discrepancy causes a misallocation of equity and residual control rights toward corporate fraud. Equity control exerts a greater impact on fraud, thus enabling innovation; herein, the company controller is a value investor and active regulator. This paper provides new insights and references for controlling rights and corporate governance in emerging markets and fills a current gap in the literature.