Corporate fraud, risk avoidance, and housing investment in China

Geng Niu (), Li Yu, Gang-Zhi Fan and Donghao Zhang

Emerging Markets Review, 2019, vol. 39, issue C, 18-33

Abstract: This study investigates the impact of corporate fraud on household investment choices. We conjecture that by undermining trust in the financial and insurance market, corporate fraud behaviour would decrease households' investment in risky financial assets and increase investment in non-financial assets. Combining data on households' investment behaviour with information on fraudulent activities of listed companies in China, we find that households with more lifetime experience of corporate fraud invest less in stocks and are less likely to purchase private insurance. By contrast, fraud experience increases households' intention to invest in residential real estate. In addition, the impact of corporate fraud is stronger among individuals who pay more attention to economic information, among individuals who have more social interaction, and among individuals in better regulated regions. Furthermore, we find that different types of fraud have differentiated effects on household investment decisions. Our findings indicate that corporate misconduct could generate profound negative externalities on the whole financial system.

Keywords: Corporate fraud; Negative externality; Household finance; Housing investment; China (search for similar items in EconPapers)
JEL-codes: D12 D14 G30 R21 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ememar:v:39:y:2019:i:c:p:18-33

DOI: 10.1016/j.ememar.2019.03.003

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