The secret of imitating wrongdoing: Accidental or deliberate

Abstract

This study investigates the drivers of financial misconduct imitation, an important aspect of its prevention and detection. Using a sample of Chinese listed firms from 2007 to 2021, we introduce an innovative method for identifying each focal firm’s product-based peer firms. Empirical results reveal that firms involved in financial misconduct frequently imitate their product-based peers’ misdeeds. We explore financial misconduct imitation further, distinguishing between information-driven and rivalry-driven motivations, to determine whether the imitation is accidental or deliberate. For information-driven motivations, focal firms perceive product-based peers’ misconduct as signaling private information, especially when managers receive lower compensation or lack international experience. External oversight mechanisms, including accounting firm and analyst coverage, impact the financial misconduct imitation. For rivalry-driven motivations, a firm’s comparative advantage and relative profitability significantly impact its propensity to mimic misbehavior, particularly among peers with fewer financial constraints. Our findings emphasize the prevalence of misconduct imitation among economically related firms.