Research on the Effect of Executives with Legal Backgrounds on Corporate Frauds- Empirical Analysis Based on A-share Listed Companies

Abstract

: Hypothesizing based on upper echelon theory, principal-agent theory, corporate governance theory, and ownership theory, this paper focuses on 1320 A-share listed companies of going concern in Shenzhen and Shanghai stock markets for seven years from 2009 to 2016. It explores the effect of executives’ legal backgrounds on corporate frauds and changes in relations between executives with legal backgrounds and corporate fraud under different natures of ownership, as well as analyzes the specific effect mechanism of executives with legal backgrounds. The results show: (1) Executives with a legal background are able to play a role in inhibiting frauds of listed companies, and the more executives with legal backgrounds, the fewer frauds of listed companies; (2) The companies’ nature of ownership plays a moderating role in the effect of executives with legal backgrounds on frauds of listed companies. The inhibition effect of executives with legal backgrounds on corporate frauds is more obvious in state-owned enterprises; (3) The reason why companies for which executives with legal backgrounds work have fewer frauds is that the executives choose low-risk companies prior to the service, which is a function of signal transmission. The conclusions provide suggestions for listed companies in terms of optimizing talent structure, strengthening internal governance, and appointing executives for shareholders, as well as the basis for regulatory authorities to conduct key supervision.