TY - JOUR
T1 - Does financial statement comparability mitigate corporate frauds in an emerging market? Evidence from China
AU - Jiu, Lili
AU - Hu, Shiyang
AU - Liu, Yuanyuan
N1 - Funding information:
Shiyang Hu acknowledges financial support from the National Natural Science Foundation of China (Grant No. 71802029). Yuanyuan Liu acknowledges financial support from the National Natural Science Foundation of China (Grant No. 71790602,72002182).
This work was supported by the National Natural Science Foundation of China [71802029,72002182].
Publisher Copyright:
© 2021 City University of Hong Kong and National Taiwan University.
PY - 2023/3/4
Y1 - 2023/3/4
N2 - In this paper, we empirically examine whether financial statement comparability mitigates corporate fraud in China. Using the FSC measure proposed by De Franco, Kothari and Verdi (2011), we find that firms with greater comparability are less likely to commit frauds, either accounting – or non-accounting-related frauds. Further tests confirm that regulators can more quickly detect the fraudulent activities of accused firms if their financial statements are more comparable with those of their same-industry peers. Cross-sectional analyses show that the negative relationship between FSC and fraud incidence is more pronounced for firms with lower institutional ownership, and for those operating in regions with more developed markets. Overall, our study provides evidence for the benefits of peer comparisons in the fraud context, and has implications for investors, regulators, and standard setters.
AB - In this paper, we empirically examine whether financial statement comparability mitigates corporate fraud in China. Using the FSC measure proposed by De Franco, Kothari and Verdi (2011), we find that firms with greater comparability are less likely to commit frauds, either accounting – or non-accounting-related frauds. Further tests confirm that regulators can more quickly detect the fraudulent activities of accused firms if their financial statements are more comparable with those of their same-industry peers. Cross-sectional analyses show that the negative relationship between FSC and fraud incidence is more pronounced for firms with lower institutional ownership, and for those operating in regions with more developed markets. Overall, our study provides evidence for the benefits of peer comparisons in the fraud context, and has implications for investors, regulators, and standard setters.
KW - corporate fraud
KW - financial statement comparability
KW - information asymmetry
KW - Peer comparison
UR - https://www.ingentaconnect.com/content/routledg/raae20/2023/00000030/00000002/art00006
UR - http://www.scopus.com/inward/record.url?scp=85114775732&partnerID=8YFLogxK
U2 - 10.1080/16081625.2021.1976229
DO - 10.1080/16081625.2021.1976229
M3 - Journal article
AN - SCOPUS:85114775732
SN - 1608-1625
VL - 30
SP - 391
EP - 408
JO - Asia-Pacific Journal of Accounting and Economics
JF - Asia-Pacific Journal of Accounting and Economics
IS - 2
ER -
