Institutional Investors, Political Connections, and the Incidence of Regulatory Enforcement Against Corporate Fraud

We investigate two under-explored factors in mitigating the risk of corporate fraud and regulatory enforcement against fraud, namely institutional investors and political connections. The role of institutional investors in the effective monitoring of a firm's management is well established in t...

Full description

Saved in:
Bibliographic Details
Published in:Journal of business ethics 2016-04, Vol.134 (4), p.709-726
Main Authors: Wu, Wenfeng, Johan, Sofia A., Rui, Oliver M.
Format: Article
Language:English
Subjects:
Boards of directors
Business and Management
Business entities
Business Ethics
Business government relations
Chairman of the board
Chief executive officers
China
Companies
Corporate governance
Correlation analysis
Education
Enforcement
Entrepreneurship
Ethics
Executives
Fraud
Governance
Government sponsored enterprises
Institutional investments
Investigations
Investors
Management
Market development
Mutual funds
Ownership
Philosophy
Politicians
Politics
Public enterprise
Quality of Life Research
Reforms
Regulation
Risk
Shareholder meetings
Shareholders
Stock exchanges
Stockholders
Trust companies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We investigate two under-explored factors in mitigating the risk of corporate fraud and regulatory enforcement against fraud, namely institutional investors and political connections. The role of institutional investors in the effective monitoring of a firm's management is well established in the literature. We further observe that firms that have a large proportion of their shares held by institutional investors have a lower incidence of enforcement actions against corporate fraud. The importance of political connections for enterprises, whether in a developed market such as the United States or an emerging market such as China, has been established by previous studies. However, we find evidence of another positive effect of political connections: they may reduce the incidence of enforcement action against corporate fraud. We also find that political connections play a more significant role in reducing regulatory enforcement incidents against non-state-owned enterprises and firms in weaker legal environments, whereas institutional ownership plays a more important role in reducing regulatory enforcement incidents against state-owned enterprises.
ISSN:0167-4544
1573-0697
DOI:10.1007/s10551-014-2392-4