Does mutual fund investment influence accounting fraud? |
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| Institution: | 1. School of Securities and Futures, Southwestern University of Finance and Economics, Chengdu 611130, China;2. Peking University HSBC Business School, Shenzhen 518055, China;1. National Chengchi University, Taiwan;2. University of Southampton Management School, Highfield Campus, Southampton SO17 1BJ, UK;3. University of Edinburgh Business School, University of Edinburgh, 29 Buccleuch Place, Edinburgh, EH8 9JS, UK |
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| Abstract: | Does mutual fund investment deter accounting fraud? Using a bivariate probit model, this study examines the relationship between mutual funds and accounting fraud between 2007 and 2014. We observed mutual fund investment has significantly higher levels of fraud detection, reducing firms' propensity to commit fraud. This validates Chinese regulators' efforts to develop mutual funds to address accounting fraud. Open-end mutual funds outperform closed-end mutual funds in detecting accounting fraud and reducing fraud commission; redeemable shares appear to discipline managers. This effect is moderated by state ownership of listed firms: mutual funds cannot effectively detect fraud in state-owned firms. |
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