Cross-Ownership And Corporate Fraud

Corporate fraud has been repeatedly prohibited in China’s capital market.In the "Twenty Typical Illegal Cases of Securities Regulatory Inspection in 2021" issued by the CSRC on April 1,2022,the frauds of corporate information disclosure,financial fraud,internal transactions and other frauds accounted for the vast majority of seats.China’s capital market started late,the legal environment is relatively weak,and the strength of illegal supervision and departure is not enough,leading to more and more frauds of listed companies.When the corporate fraud is disclosed,it will cause a serious blow to the confidence of the majority of investors,and especially damage the interests of investors who have held the company’s shares for a long time,and seriously endanger the allocation efficiency of the capital market.Therefore,exploring the motivation of corporate frauds and the factors that affect frauds has attracted the attention of academia and relevant government regulators.The phenomenon of linkage between corporate through cross-ownership has become more and more common in the capital market,which has attracted the attention of scholars at home and abroad.The debate on whether to play a synergistic governance effect or a competitive collusion effect has never stopped.From the perspective of the synergistic governance effect of cross-ownership,the characteristics of holding multiple corporate in the same industry bring them natural supervision advantages,because they have greater information advantages and more monitoring experience.At the same time,cross-ownership can also helps corporate to obtain lower financing costs through resource advantages,thereby curbing corporate fraud.On the other hand,cross-ownership’s pursuit of the goal of maximizing portfolio value makes them more inclined to collusion,thereby increasing the probability of corporate fraud.Therefore,from the perspective of the two effects played by cross-ownership,their effects on corporate frauds are quite different.We need to explore their specific effects on corporate frauds and their ways of action through empirical tests.Based on this,this paper selects A-share listed companies from 2007 to 2020 as the main research sample,and constructs a Logit model to empirically test the impact of cross-ownership on corporate frauds.The research conclusions are as follows:(1)Cross-ownership can effectively curbs corporate frauds.Specifically,the more cross-ownership in listed companies,the higher the ownership,the lower the probability of frauds.(2)The cross-ownership can restrains the corporate frauds through the supervision channel and the resource channel.Specifically,the cross-ownership inhibits the corporate frauds by reducing the first class agency cost of the holding corporate and the debt financing cost of the corporate.(3)In the corporate with the greater power of the management and the higher independence of the board of supervisors,the cross-ownership has a greater inhibitory effect on corporate frauds.(4)The more cross-ownership hold enterprises in the same industry,the stronger their restraining effect on corporate fraud.At the same time,considering the nature of different frauds,it is found that cross-ownership mainly inhibits information disclosure frauds and business frauds of corporate,but the impact on frauds of corporate leaders is not significant.At the same time,cross-ownership has a significant inhibition effect on serious frauds and general frauds.(5)Cross-ownership can effectively reduces the audit fees of corporate by restraining the fraud of regulations of holding corporate.The above conclusions are still valid after a series of endogenous tests and robustness tests,including Heckman two-stage method,PSM(propensity score matching method)and changing the shareholding threshold of cross-ownership.This paper may have the following contributions:(1)The relevant literature on frauds of cross-ownership and corporate has been expanded.From the perspective of corporate frauds,it provides new evidence for the collaborative governance advantages of cross-ownership.(2)It reveals the specific ways in which cross-ownership has an impact on corporate behavior.The research finds that cross-ownership can influences the corporate frauds through supervision channels and resource channels,which enriches this kind of literature.