Ownership structure, financial reporting fraud and audit quality: Chinese evidence

Yu Chen and Zabihollah Rezaee

International Journal of Accounting, Auditing and Performance Evaluation, 2013, vol. 9, issue 1, 75-99

Abstract: This paper examines two types of financial reporting fraud (i.e., earnings manipulation fraud and tunnelling fraud) and their association with ownership structure and audit quality in detecting the fraud using a sample of Chinese listed firms. We find that more concentrated ownership tends to be associated with tunnelling fraud and more dispersed ownership tends to be associated with earnings manipulation fraud. Specifically, controlling shareholders tend to over-reach minority shareholders when they become more powerful, but at the same time they tend to curb earnings manipulation fraud. The second largest shareholder is able to curb earnings manipulation fraud through monitoring the management. However, we do not find evidence that they are able to curb tunnelling fraud. We also find that although auditors in China are generally effective in detecting earnings manipulation fraud, they are not so effective in detecting tunnelling fraud. Moreover, Big4 audit firms are not significantly different from non-Big4 firms in terms of detecting frauds. These findings further our understanding of the association between ownership structure and different types of fraud.

Keywords: audit quality; fraud; ownership structure; tunnelling fraud; earnings manipulation; controlling shareholders; China; financial reporting; fraud detection; concentrated ownership; dispersed ownership; minority shareholders. (search for similar items in EconPapers)
Date: 2013
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.inderscience.com/link.php?id=50624 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:ijaape:v:9:y:2013:i:1:p:75-99

Access Statistics for this article

More articles in International Journal of Accounting, Auditing and Performance Evaluation from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().