How boards’ factional faultlines affect corporate financial fraud

Shan Xue (), Yi Tang (), Yuehua Xu (), Chu-Ding Ling (), Xiao-Yun Xie () and Shenjiang Mo ()
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Shan Xue: Sun Yat-Sen University
Yi Tang: University of Hong Kong
Yuehua Xu: Shandong University
Chu-Ding Ling: Renmin University of China
Xiao-Yun Xie: Zhejiang University
Shenjiang Mo: Zhejiang University

Asia Pacific Journal of Management, 2024, vol. 41, issue 1, No 13, 376 pages

Abstract: Abstract In the corporate governance literature, it has been long debated on whether boards can effectively monitor executives’ behavior. Drawing on the factional faultlines research, this study proposes that the greater the magnitude of the faultline between inside and outside directors, the lower the likelihood of corporate financial fraud; this effect is weaker when outside directors sit on more other boards. An analysis of a sample of Chinese publicly-listed firms for 2003–2015 renders support to our predictions. Our results are robust for various model specifications and alternative measures of key variables. The implications of our findings to the corporate governance and faultline literatures are discussed.

Keywords: Board factional faultlines; Board composition; Corporate governance; Corporate financial fraud; Chinese firms (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10490-022-09859-0

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