Fraudulent financial reporting in China: Evidence from corporate renaming

Abstract

Using a sample of listed Chinese companies during 2010–2019, we examine whether corporate renaming is associated with fraudulent financial reporting. We find that companies that change their corporate names without making underlying changes to business fundamentals are more likely to commit financial reporting fraud. The positive association between corporate renaming and financial reporting fraud is more pronounced for non-state-owned enterprises and companies with a lower ownership concentration. There is further evidence that corporate renaming is more likely to be associated with disclosure-related fraud (e.g., failure to disclose or delayed disclosure) and that the likelihood of fraudulent behavior increases with the frequency of corporate renaming. Overall, the findings of this study provide evidence of a new red flag for regulators and investors investigating financial fraud. This study is timely and has policy implications for market regulators hoping to establish and improve emerging capital markets in which the information environment is generally considered weak and opaque.