The Guardians Guarded: Preventing Employee Fraud in Chinese Modern Banks (1912–1949)

Rixu Lan (), Haowen Ma () and Lingyu Kong
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Rixu Lan: Central University of Finance and Economics
Haowen Ma: Central University of Finance and Economics

Adelaide Economics Working Papers from Adelaide University, School of Economics

Abstract: How did firms govern employee misconduct in the absence of strong courts, standardized accounting, and effective external enforcement? Existing accounts of corporate governance often treat formal law and bureaucratic control as preconditions for modern organizations. Drawing on extensive archival evidence from the Shanghai Commercial & Savings Bank between 1915 and 1949, this article challenges that assumption by examining how a large, expanding bank constructed an effective internal system to prevent employee fraud under conditions of legal fragility and political instability. Conceptually, the study reframes fraud control as a historically contingent governance architecture composed of three interlocking elements: dense internal monitoring, incentive-based career structures, and a distinctive guarantor system that transferred risk to third parties while mobilizing social reputation, moral obligation, and private information. Rather than operating as an informal residue of tradition, the guarantor system functioned as a contractual and organizational device that embedded extra-organizational social relations into the bank’s formal governance structure. Based on regulations, personnel files, fraud case records, and contemporary publications, the article shows that these mechanisms were mutually reinforcing and capable of sustaining relatively low fraud incidence and high employee retention over time, though their effectiveness depended on macroeconomic stability. By historicizing corporate governance outside Western institutional settings, the study demonstrates that modern control did not require the elimination of informality but its strategic institutionalization. More broadly, it contributes to business history and the study of capitalism by revealing alternative pathways through which firms historically produced trust, discipline, and accountability in the absence of strong states.

Keywords: employee fraud prevention; Chinese modern banks; guarantor system; internal labor markets (search for similar items in EconPapers)
Date: 2026-06
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