Employee treatment and corporate fraud |
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| Affiliation: | 1. School of Economics and Commerce, South China University of Technology, Guangzhou, China;2. Shool of Finance, Zhejiang Gongshang University, Hangzhou, China;3. School of Finance, Zhongnan University of Law and Economics, Wuhan, China;4. School of Business and Management, Shanghai International Studies University, Shanghai, China;1. Lancaster University Management School, Lancaster University, LA1 4YX, Lancaster, United Kingdom;2. WHU – Otto Beisheim School of Management, Burgplatz 2, 56179 Vallendar, Germany;1. School of Public Administration, South China Normal University, China;2. School of Management, Jinan University, China;3. School of Economics, Huazhong University of Science and Technology, Luoyu Road 1037#, Wuhan 430074, Hubei, China;1. Research Institute of Economics and Management, Southwestern University of Finance and Economics, 555 Liutai Avenue, Wenjiang District, Chengdu 611130, China;2. School of Management, Guangzhou University, 230 Wai Huanxi Road, Guangzhou Higher Education Mega Center, Guangzhou 510006, China;3. School of Insurance, Southwestern University of Finance and Economics, 555 Liutai Avenue, Wenjiang District, Chengdu 611130, China;1. School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China;2. Department of Accounting, Jinan University, Guangzhou, China;3. School of Economics, Huazhong University of Science and Technology, Wuhan 430074, China |
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| Abstract: | This paper examines the association between a firm’s relations with its employees and its likelihood of committing fraud. We find that firms treating their employees fairly (as measured by employee treatment index) have a lower likelihood of committing fraud since labor-friendly firms have incentives to signal their willingness to fulfill implicit contracts and maintain long-term relationships with employees. Further analysis shows that employee involvement and cash profit-sharing are the most important components in employee treatment to determine our results. Moreover, we show that the negative association between employee treatment and fraud propensity is more prominent when a firm is in a high-tech industry, when a firm in a less competitive industry, and when employees have less outside employment opportunities. Finally, we show that our results are not driven by the employee’s moral sensitivity or other labor related factors (i.e. labor wage, pension benefits, and labor union power). |
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| Keywords: | Employee treatment Corporate fraud Stakeholder Implicit contracts G34 |
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