Research On The Contagion Of Corporate Frauds

China's stock market is now playing an increasingly important role in national economy,however,as an emerging market in development,its institution construction and investor protection still lag behind developed markets',and corporate frauds occur frequently and even in flocks.The prior researches on corporate frauds discussed the incentives and influential factors of corporate frauds,which provided guides to institution construction.We noticed that most of the prior works picked out corporates from the social network in which they were embedded and regarded them as isolated decision-makers,neglecting the communication and interaction among them.Considering that individuals may acquire and follow a certain behavior by observation,our question is whether corporate fraud is contagious? As the TMT(Top Management Team)interlock relation is a kind of vital social relations for corporate,in this thesis,we aim to examine the contagion of fraud and its sensitive factors from the perspective of TMT interlocks.Using the sample of A-share listed firms in China during the period of 2011~2016,we identify the relations between corporates via TMT interlocks,and build a social network covering them all.Inspired by the Threshold Models of Collective Behavior,we measure the proportion of fraud firms in all the firms that the focal firm is interlocked with as the independent variable,fraud atmosphere,to examine its impact on the fraud tendency of the focal firm and investigate the contagion of corporate fraud.The results show that:(1)Fraud atmosphere significantly abets the fraud tendency of the focal firm,which indicates the contagion of corporate fraud.(2)The focal firm with a strong fraud habit is more likely to commit fraud again and more likely to be infected with fraud atmosphere.(3)Corporate fraud is more contagious when the focal firm is in a lower regulatory intensity.(4)Corporate fraud is contagious not only between the firms interlocked by board chairmen or CEOs,but also the firms interlocked by other senior managers.(5)The state-owed enterprises are less likely to involve fraud,but more possible to get infected.(6)Information disclosure fraud and operation fraud are highly contagious while leadership fraud is not contagious.(7)Contagion of corporate fraud may not occur immediately the focal firm joins in the network,and a gradual process is needed before it is infected.This research indicates the contagion of corporate fraud and its sensitive factors from the perspective of TMT interlocks,enriches the literature of corporate fraud and provides a new viewing angle for the impacts of TMT interlocks and social network on corporate governance.The findings offer a new path to build the institutions of financial market,and to help the regulator to reinforce regulation,maintain the justice and stability of financial market.In addition,the findings also provide some advice for corporate on selecting senior managers and establishing social network.