Financial fraud contagion through board interlocks: the contingency of status. Issue 2 (16th December 2019)

• Record Type: Journal Article
• Authors: Jiang, Yusi; Zhao, Yapu
• Is Part Of: Management decision. Volume 58:Issue 2(2020)
• Page Start: 280
• Page End: 294
• Publication Date: 2019-12-16
• Subjects: Financial fraud -- Status -- Board interlocks -- Contagion; Management -- Periodicals; 658.403
• DOI: 10.1108/MD-12-2018-1355
• Languages: English
• ISSNs: 0025-1747

Abstract

Abstract : Purpose: The purpose of this paper is to explore the implications of the relative status between two interlocking firms for financial fraud or non-fraud contagion through interlock ties. Design/methodology/approach: This study uses a sample of publicly listed firms in China over a ten-year period from 2005 to 2014. Data are collected from the China Stock Market and Accounting Research Database. Findings: This study finds that non-fraud behaviors of lower-status partners inhibit fraud behaviors of the focal firm, whereas their fraud behaviors have no effect on the focal firm. In contrast, fraud behaviors of higher-status partners facilitate fraud behaviors of the focal firm, whereas their non-fraud behaviors have no effect on the focal firm. Originality/value: This study provides new insights to the misconduct contagion literature by considering firms' status differential as an important factor that governs the contagion process of fraud or non-fraud behaviors in board interlocks. It combines role theory and the contagion literature by studying the influence of the match between the status-based role expectations and practices of interlocking firm on the focal firm's decision to engage in the same type of practice.