State ownership and securities fraud: A political governance perspective

Abstract

Research question/issue This study attempts to shed new light on how the state as a controlling shareholder can affect the interests of minority shareholders by investigating the role of state ownership in deterring securities fraud commission. Research findings/insights Using archival data from a large sample of Chinese publicly traded firms, we uncover that state ownership is negatively associated with the likelihood of securities fraud commission. Further, CEO political background reinforces this negative relationship. We also uncover that firms with high state ownership are more likely to dismiss CEOs than those with low or no state ownership upon securities fraud detection. Theoretical/academic implications Departing from agency theory‐centric research on state ownership and corporate governance, this study introduces a political governance perspective to unpack the role of state ownership in corporate governance. Political governance refers to organizational control mechanisms deployed by political actors to achieve their objectives. Practitioner/policy implications Studying how political governance systems influence managerial behaviors is critical to gaining a complete insight into the implications of state ownership on corporate governance.

CEO Awards and Financial Misconduct

“…Second, scholars have already devoted much attention to unpacking the role of CEOs in financial misconduct in the U.S. context (Schnatterly et al, 2018), but we know less about what drives misconduct in other contexts. Studying misconduct by Chinese CEOs, therefore, adds to the empirical body of work on financial misconduct (Shi, Aguilera, & Wang, 2020). Last, China constitutes the world's second largest economy, so it seems reasonable to extend research on organizational misbehavior to this country.…”

The link between corporate governance and corporate financial misconduct. A review of archival studies and implications for future research

“…In line with foreign and family ownership, the integration of state ownership is only relevant in Asian studies. There are indications that state ownership reduce fraud events (Shan et al 2013;Shi et al 2020). Shi et al (2020) also found that CEO political background moderates this relationship.…”

“…There are indications that state ownership reduce fraud events (Shan et al 2013;Shi et al 2020). Shi et al (2020) also found that CEO political background moderates this relationship.…”

Publishing corporate governance research during a pandemic

“…They interpret their findings as consistent with outside directors providing a weak internal monitoring mechanism as they leave precisely when shareholders need their expertise the most. Shi et al (2020) shed new light on the role of the state as a controlling shareholder and how it affects the interests of minority shareholders. Using a large sample of Chinese publicly traded firms, they find that state ownership is negatively associated with the likelihood of securities fraud.…”