The Motivation And Governance Of Financial Fraud In Subsidiaries

At present,China is in the period of economic transition and accelerated transformation of enterprises,and "diversification" has gradually become a new idea and new normal for enterprises to seek survival and development.At the same time,since 2014,Chinese M & A market has continued to heat up under the strong support of national policies.Therefore,more and more listed companies realize their strategic objectives of diversification and business transformation through diversification M & A.With the completion of diversification M & A transactions,the parent subsidiary relationship between the listed company and the target of M & A is formed.Since then,the target of M & A can realize indirect listing and obtain capital market dividend.In recent years,the financial fraud of subsidiaries formed by diversification M & A of listed companies has emerged in an endless stream,which has a serious impact on the listed companies and the capital market.How to identify and prevent the financial fraud of subsidiaries has become a new focus for listed companies to control subsidiaries.Therefore,it is of theoretical and practical significance to study the financial fraud of subsidiaries formed by diversification M & A.This paper focuses on the financial fraud of subsidiaries formed by diversification mergers and acquisitions of listed companies.The theoretical analysis and case study are combined in the research process,and the financial fraud of Ningbo Donly subsidiary’s Everich Supply Chain is taken as a specific case.First of all,through the domestic and foreign literature on diversification mergers and acquisitions,financial fraud and control of subsidiaries to understand the current research status,through the definition of relevant concepts and related theoretical analysis to lay the foundation for the specific case analysis below.Secondly,the paper introduces the selected cases,including Ningbo Donly diversification M & A of the Everich Supply Chain,financial fraud of the Everich Supply Chain and its means of financial fraud.Thirdly,from the perspective of motivation and influence,this paper analyzes the financial fraud in the Everich Supply Chain.Based on the fraud triangle theory,it classifies the motivation of financial fraud of subsidiaries into three dimensions: parent company,subsidiary company and regulatory agency.It also analyzes the impact of subsidiary financial fraud on financial fraud according to the transmission process of subsidiary information to the capital market.Finally,according to the analysis of the content of the research conclusion,and according to the conclusion of the subsidiary financial fraud governance put forward relevant suggestions.This paper finds that:(1)The causes of financial fraud of subsidiaries can be summarized as follows: first,the failure of control over subsidiaries by listed companies provides opportunities for financial fraud of subsidiaries,which is caused by the increasing difficulty of subsidiary control and the excessive decentralization of control mode of subsidiaries under the background of diversification merger and acquisition;second,there are pressure,opportunity and excuse for fraud in subsidiaries;third,the weak supervision of regulatory agencies also provides opportunities for financial fraud of subsidiaries.(2)The impact of financial fraud on subsidiaries can be summarized as follows: first,as the perpetrators of financial fraud,subsidiaries bear the main responsibility and face the double punishment of administrative and criminal punishment,and the continuous operation is affected;second,the listed companies suffer economic losses as the receiver of information,on the other hand,as the transmitter of information,they face regulatory penalties and other impacts;third,investors suffer economic losses.Based on the research findings,this paper believes that the impact of financial fraud on subsidiaries is extensive and far-reaching,and both listed companies and regulators should pay proper attention to financial fraud of subsidiaries.The listed companies should strengthen the control of subsidiaries and the regulatory agencies should strengthen the regulatory role to achieve the governance of financial fraud of subsidiaries.The contributions of this paper are as follows:(1)Based on the control problems formed by diversification M & A,this paper studies the motivation and impact of financial fraud of subsidiaries,and puts forward governance opinions,which enriches the relevant literature on diversification M & A,financial fraud and subsidiary control;(2)Based on the analysis of specific cases,this paper provides a reference for listed companies to strengthen the control of subsidiaries and regulatory authorities to strengthen supervision,and also provides direction for future capital market supervision.