Managing the risks of corporate fraud: The evidence from Hong Kong and Singapore

• Main Authors: WAN, Wai Yee, CHEN, Christopher C. H., XIA, Chongwu, GOO, Say
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2018
• Subjects: Corporate fraud; independent directors; corporate governance; foreign listings; Asian Studies; Business Law, Public Responsibility, and Ethics
• Online Access: https://ink.library.smu.edu.sg/sol_research/2755; https://ink.library.smu.edu.sg/context/sol_research/article/4713/viewcontent/HKLJ_281117CLN.pdf
• Institution: Singapore Management University

Since the Asian financialcrisis of 1997, Hong Kong and Singapore have implemented reforms that promote independenceand monitoring competency of the boards of directors of their listed companies.However, with the advent of the financial crisis of 2007/2008, a wave of fraudcases prompts the question as to the effectiveness of these reforms. Analysing asample of 62 listed companies which are found to have committed fraud between2007 and 2014, and comparing against a matched sample of no-fraud companies, wefind that the fraud companies tend to either combine the roles of chairman andchief executive officer (or they are close family members) and have fewer non-accountingfinance experts on their boards. They are also likely to be overseas mainlandChinese firms. Analysing the specific case studies of fraud, the reasons forthe lack of effectiveness in the independent directors in preventing fraud are likelydue to the difficulties in obtaining access to information in approvingconflicted transactions, low threat of enforcement actions, their incentives toside with controlling shareholders and the challenges in regulating foreignlistings.