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Delisting pressure, executive compensation, and corporate fraud: Evidence from China

Author

Listed:
  • Zhou, Fangzhao
  • Zhang, Zenan
  • Yang, Jun
  • Su, Yunpeng
  • An, Yunbi

Abstract

This paper studies the relationship between executive compensation and the incidence of corporate fraud in Chinese listed companies from the perspective of delisting pressure. We find that delisting pressure directly contributes to the incidence of fraud, especially the incidence of information disclosure violations, given the unique listing and delisting systems in the Chinese stock market. We also find that CEOs and CFOs with relatively low pay are more likely to commit fraud, regardless of whether or not delisting pressure is present. However, delisting pressure weakens the negative relationship between executive pay and the likelihood of corporate fraud. Finally, when equity incentives are also considered, the effect of CEOs' total compensation on fraud is contingent on delisting pressure. High CEOs' total compensation has a deterring effect on fraud for firms with no delisting pressure, while this effect disappears for firms with delisting pressure.

Suggested Citation

  • Zhou, Fangzhao & Zhang, Zenan & Yang, Jun & Su, Yunpeng & An, Yunbi, 2018. "Delisting pressure, executive compensation, and corporate fraud: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 48(C), pages 17-34.
    • Handle: RePEc:eee:pacfin:v:48:y:2018:i:c:p:17-34
    DOI: 10.1016/j.pacfin.2018.01.003
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    More about this item

    Keywords

    Delisting pressure; Corporate fraud; Executive compensation;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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