Abstract
A key feature of publicly listed companies all over the world is that the people who own the company, its investors, do not typically participate in the day-to-day management of the company. This separation of ownership and control can become a problem when investors and management have different objectives. Disclosure is a primary means through which investors can understand what managers are doing and ensure that managers serve the objectives of the companys owners. However, since management is responsible for preparing the companys financial statements, they could misreport the numbers to mislead investors. Previous research showed managers had discretion in manipulating the numbers in the financial report. In this paper, we collected samples of Chinese companies listed in the United States, such as Luckin Coffee, and assessed whether there were any signs that might help investors identify fraud earlier than they were discovered, and what mechanisms prevented managers from doing so.
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