Does financial statement comparability mitigate corporate frauds in an emerging market? Evidence from China

Lili Jiu, Shiyang Hu, Yuanyuan Liu*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

2 Citations (Scopus)

Abstract

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.

Original languageEnglish
Pages (from-to)391-408
Number of pages18
JournalAsia-Pacific Journal of Accounting & Economics
Volume30
Issue number2
DOIs
Publication statusPublished - Mar 2023
Externally publishedYes

Keywords

  • Peer comparison
  • corporate fraud
  • financial statement comparability
  • information asymmetry

Fingerprint

Dive into the research topics of 'Does financial statement comparability mitigate corporate frauds in an emerging market? Evidence from China'. Together they form a unique fingerprint.

Cite this