Institutional Ownership,Security Analyst Following And Corporate Fraud

Chinese stock market that set up for more than20years, has been occupied an important position that can’t be ignored in the sustained growth of national economy. However, it’s the incident of violating laws and regulations concerning listed companies of China happened one after another damaged the majority of investors’legitimate rights and functions of stock market to optimize the allocation of resources effectively. It is important and urgent to govern corporate fraud. The impact of internal corporate governance on corporate fraud has been drawn concerns of the academia, but there are only a few researches on external governance factors. As the professional investors of the securities market, institutional investors are restricted to sell free for their high stake. And with the development of the securities market and institutional investors, the positive effect of institutional investors on listed companies becomes increasingly prominent. On the other hand, security analysts reduce the degree of information asymmetry of the company and supervise the behavior of the management through information collection, processing and transmission of the listed companies. It is a kind of important external governance mechanism.Therefore we explore the relationship among institutional ownership and security analyst following and corporate fraud. Firstly, starting from the institutional background, we make descriptive statistics on the quantity and quality characteristics of corporate fraud and make deep analysis of the reasons. So we can have a whole grasp of corporate fraud. Then we use the samples of the Shanghai and Shenzhen A-share listed companies from2008to2011to study the impact of institutional ownership and security analyst following on corporate fraud respectively. And considering the mutual influence between institutional ownership and securities analysts following, we design a model as additional testing to examine it. Finally, there may be endogeneity issues between institutional ownership and corporate fraud as well as security analyst following and corporate fraud. So we examined the relationship between previous independent variables and current dependent variables.The statistical results show that the number of issues on listed companies punished publicly in China presents the trend of increase to decrease then increase in recent years. The empirical results reveal that institutional ownership and security analyst following are negatively and significantly related to corporate fraud. Institutional ownership and security analyst following have interaction effect. The existence of one party has weakened the role the other party played in supervision of the listed companies. Overall, the above results imply that institutional investors and security analysts help to prevent corporate fraud in China. This study provides important implications in acting against corporate fraud in Chinese financial market.