What Affects Financial Statement Fraud in China

Abstract

This paper conducts empirical search on relationship between corporate governance, institutional environment and financial statement fraud of publically listed Chinese companies. The data come from the legal enforcement of the Chinese Securities Regulatory Commission (CSRC), Shenzhen Stock Exchange and Shanghai Stock Exchange. The degree of the financial statement fraud of each penalized list company is calculated in this paper. Empirical result indicates: duality of CEO, shares of manger, concentration of shareholding, and development of factor market are positively related to financial statement fraud, and the tenure of company chairman, the proportion of state shareholding, the proportion of legal person shareholding, profit, the auditor independence and the relationship of government and market are negatively related to financial statement fraud. However, proportion of outside directors, the size of the board, the size of the supervisory board and legal environment have no impact on financial statement fraud in China.