Institutional Investors, Political Connections, and the Incidence of Regulatory Enforcement Against Corporate Fraud

Wenfeng Wu (First Author), Oliver Meng Rui (Participant Author), Sofia A. Johan (Participant Author)

Research output: Contribution to journalJournal

77 Citations (Web of Science)

Abstract

We investigate two under-explored factors in mitigating the risk of corporate fraud and regulatory enforcement against fraud, namely institutional investors and political connections. The role of institutional investors in the effective monitoring of a firm’s management is well established in the literature. We further observe that firms that have a large proportion of their shares held by institutional investors have a lower incidence of enforcement actions against corporate fraud. The importance of political connections for enterprises, whether in a developed market such as the United States or an emerging market such as China, has been established by previous studies. However, we find evidence of another positive effect of political connections: they may reduce the incidence of enforcement action against corporate fraud. We also find that political connections play a more significant role in reducing regulatory enforcement incidents against non-state-owned enterprises and firms in weaker legal environments, whereas institutional ownership plays a more important role in reducing regulatory enforcement incidents against state-owned enterprises.
Original languageEnglish
Pages (from-to)709-726
JournalJournal of Business Ethics
Volume134
Issue number4
DOIs
Publication statusPublished - 2016

Corresponding author email

wfwu@sjtu.edu.cn

Project name

公司金融与公司治理

Project sponsor

国家自然科学基金

Project No.

71222203

Keywords

  • China
  • Fraud
  • Institutional investor
  • Political connections

Indexed by

  • FT
  • ABDC-A
  • Scopus
  • SSCI

Fingerprint

Dive into the research topics of 'Institutional Investors, Political Connections, and the Incidence of Regulatory Enforcement Against Corporate Fraud'. Together they form a unique fingerprint.

Cite this