CEO Power And Financial Reporting Fraud

Since the foundation of capital markets,financial reporting fraud has been continuous and increasingly serious,which significantly affects not only the stakeholders' vital interests but also the capital markets' healthy development.In May 2010,the COSO issued a research report which pointed out that 72%of the CEOs of the listed companies committing financial reporting fraud over nearly past 10 years in the United States were involved in financial reporting fraud.Here,the CEO is a product of corporate governance structure reform and innovation in the 1960s in America.CEO system promoted the rapid development of the capital markets in the United States,but the expansion of CEO power at the same time under this system is considered to be the main reason for a series of financial reporting fraud cases in the United States.Therefore,it's of great significance to research CEO power and financial reporting fraud so as to promote the reasonable allocation of CEO power and reduce the happening of financial reporting fraud.This research is even more important to make CEO system really exerts its advantages in China where CEO system has not matured yet.Furthermore,as internal causes of behavior,psychological factors have a significant impact on the process of behavior,and financial reporting fraud is essentially an economic behavior under the action of both psychological factors and external features.Some research has shown that the management generally has the tendency of overconfidence and this psychological feature will strengthen their subjective cognition of their own power and significantly affect the process of power exercising such as investment decision,merger and acquisition decision,dividend policy,etc.Therefore,it is necessary to take psychological factors into account and study the relationship of CEO power and financial reporting fraud under the influence of overconfidence.Studies on financial reporting fraud in a traditional research perspective mainly focus on factors such as internal corporate governance and external institutional environment,but there is little literature exploring the impact of CEO power on financial reporting fraud.And a few empirical studies on financial reporting fraud based on behavioral economics only focus on the impact of a certain psychological factor on financial reporting fraud without combining with other characteristics of fraud committing people.Furthermore,there're significant differences in the arrangement of control right and incentive mechanism between state-owned enterprises and non-state-owned enterprises in China.The governance structure with owner absence and the implicit incentives of political relation lead to the particularity of CEO power and fraud behavior in state-owned enterprises.Therefore,selecting the non-financial A-share listed companies which were punished for financial reporting fraud from 2006 to 2014 as the fraud sample and matching the fraud sample according to criteria such as year,industry and company size,this thesis studied the impact of CEO power on financial reporting fraud under the influence of overconfidence and nature of property rights,which took both inner psychological factors and external power characteristics of CEOs into account.This thesis draws the following conclusions after research:(1)the larger CEO power is,the greater the possibility of financial reporting fraud in listed companies is;(2)overconfidence significantly strengthens the positive correlation between CEO power and the possibility of financial reporting fraud in listed companies;(3)the positive impact of CEO power on financial reporting fraud in state-owned listed companies is significantly higher than this in non-state-owned listed companies.According to above research conclusions,this thesis proposed some suggestions about allocating CEO power reasonably,reducing the degree of CEO's overconfidence and promoting the reform of state-owned enterprises.The content of this thesis can be divided into the following six parts:The first part is introduction.This part first introduces the background of this research and significance,research contents and methods as well as innovation points in this thesis.The second part is literature review,which reviews the existing literature on financial reporting fraud,CEO power and corporation performance,overconfidence and top managers' decision respectively and then draws conclusions on the review.The third part is theoretical basis and research hypothesis,which mainly introduce the theories involved in this thesis and put forward the research hypothesis on the basis of theoretical analysis.The fourth part is research design,which mainly introduces the sample selection process and the sources of data,defines the variables and then establishes the research models.The fifth part is empirical analysis including descriptive statistics and T test,logistic regression analysis and robustness test.The sixth part is conclusions and prospects which summarize the research conclusions of this thesis first,put forward specific suggestions about improving the CEO system,optimizing the corporate governance structure and preventing financial reporting fraud in China,and then point out the limitations of this thesis and possible research directions in future.The theoretical significance of this thesis is that provide financial reporting fraud related research with a new perspective,add the content of research related to CEO power and overconfidence and enrich the research achievements related to corporate governance.The practical value of this thesis is that not only provide listed companies with the reference to prevent financial reporting fraud from both inside and outside aspects of CEO's psychological factors and power characteristics,but also provide listed companies with the reference to allocate CEO power reasonably to promote the CEO system really exerting its advantages and realize the efficient development of listed companies in China.