JOURNAL ARTICLE

Does Bank Monitoring Reduce Corporate Misreporting? Evidence from Foreign Bank Entry in China.

  • Published In: Management Science (INFORMS), 2025, v. 71, n. 5. P. 4223 1 of 3

  • Database: Business Source Ultimate 2 of 3

  • Authored By: Li, Minwen; Makaew, Tanakorn; Winton, Andrew 3 of 3

Abstract

This article focuses on the relationship between bank monitoring and corporate financial misreporting, using China's staggered banking liberalization from 2001 to 2006 as a natural experiment. The authors develop a theoretical model predicting that entry by more efficient foreign banks lowers financial fraud by reducing monitoring costs, with stronger effects for borrowers with higher fixed assets or lower current assets. Empirical analysis of enforcement actions by the China Securities Regulatory Commission (CSRC) finds that foreign bank entry significantly reduces fraud among their clients and also decreases fraud among domestic bank clients, indicating spillover effects. Additionally, fraud reduction is more pronounced in high-growth industries, supporting the model's predictions and suggesting that banking sector development plays a key role in curbing corporate fraud.

Additional Information

  • Source:Management Science (INFORMS). 2025/05, Vol. 71, Issue 5, p4223
  • Document Type:Article
  • Subject Area:Business and Management
  • Publication Date:2025
  • ISSN:0025-1909
  • DOI:10.1287/mnsc.2022.02414
  • Accession Number:185001465
  • Copyright Statement:Copyright of Management Science (INFORMS) is the property of INFORMS: Institute for Operations Research & the Management Sciences and its content may not be copied or emailed to multiple sites without the copyright holder's express written permission. Additionally, content may not be used with any artificial intelligence tools or machine learning technologies. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Looking to go deeper into this topic? Look for more articles on EBSCOhost.