Peer network and financial misconduct: An analysis from the perspective of social reciprocity

Abstract

Drawing on the principle of social reciprocity, this study constructs peer networks to examine how inter-firm relational structures affect financial misconduct. Using a sample of Chinese listed firms from 2007 to 2021, we examine how peer network characteristics, including network size, density, and closeness centrality, influence the propensity of focal firms to engage in financial misconduct. Empirical results reveal that peer network characteristics significantly mitigate financial misconduct, a relationship that persists across multiple robustness checks. We further investigate underlying mechanisms by examining the moderating roles of managerial characteristics, internal governance mechanisms, and external institutional environments. Specifically, managerial expertise and heterogeneity amplify the deterrent effect of peer networks, suggesting that highly knowledgeable and diverse leadership strengthens normative oversight. Moreover, both internal governance structures and external institutional pressures further moderate the deterrent efficacy of peer networks. Notably, firms exhibiting robust financial performance derive the greatest supervisory benefits from their peer network positions. The misconduct-deterring power of peer network is attenuated in contexts of high institutional ownership but amplified by stronger regulatory intensity. Our findings underscore the pivotal role of peer networks in shaping corporate conduct and offer a novel inter-firm governance perspective on the antecedents of financial misconduct.