Abstract: In recent years, there has been a surge in fraud incidents involving listed companies. The data released by the China Securities Regulatory Commission (CSRC) reveals that the number of violations by A-share listed companies increased from 116 in 2010 to 1485 in 2020, indicating a growing trend of non-compliance. In October 2020, the Opinions of the State Council on Further Improving the Quality of Listed Companies emphasized “raising the cost of violations of laws and regulations of listed companies and related entities, and strengthening law enforcement efforts to improve the operation standardization of listed companies”. Consequently, addressing corporate violations and enhancing the quality of listed companies has become a key focus for both academia and industry.
While existing research primarily focuses on internal corporate governance factors and external regulatory environment as influencing factors for corporate fraud, little attention has been paid to the impact of informal institutions. As a typical informal institution, integrity is widely recognized as a crucial social capital that determines a country’s economic growth and social progress in addition to physical and human capital. Regional integrity construction provides an environment for people to trust each other, reduces information asymmetry, and has a guiding and constraining function. Under this system based on social integrity values, enterprises are influenced by various internal and external factors which shape their business conduct.
From an informal institutional perspective, the paper empirically examines how regional integrity construction impacts corporate fraud, using A-share listed companies in Shanghai and Shenzhen from 2010 to 2019 as its sample group. By utilizing the China City Commercial Credit Environment Index (CEI) to measure the levels of regional integrity construction, we establish a Probit model,an Ordered-Probit model and an OLS regression model for empirical analysis.Our research findings indicate that regional integrity can significantly inhibit corporate fraud.We utilize the regional education level as an instrumental variable and employ the 2SLS method to address endogeneity. Additionally, we lag the explanatory variable by one period to mitigate the endogeneity issue. Furthermore, we employ methods such as altering the regression model, substituting the explained variable, and replacing the explanatory variable to bolster the robustness of our conclusions.Subsequently, we delve into investigating how regional integrity influences corporate fraud. Our empirical study reveals that the gender of senior executives, institutional investors’ shareholding ratio, audit quality, and media attention have a moderating effect on the negative correlation between regional integrity and corporate violations. Specifically, we find that regional integrity exerts a more significant inhibitory effect on corporate fraud in companies with a lower proportion of female executives, higher proportion of institutional investors, non-Big 4 auditors for hire, and greater media attention. Moreover, we analyze the influence path and find that regional integrity construction impacts corporate fraud through two pathways: alleviating corporate financing constraints and enhancing internal control quality.
The major contributions of this paper are as follows. First, this paper provides a new perspective and empirical evidence for the research on the factors affecting corporate violations. Different from the previous perspectives of internal corporate governance and external regulatory environment, this paper focuses on the positive effect of informal institutions, i.e., regional integrity construction,on restraining corporate fraud. Our research enriches the relevant literature. Second, this paper confirms that regional integrity plays an important role in corporate governance, and promoting regional integrity construction can significantly inhibit corporate violations. Our findings provide evidence from the micro firm level for the research about the economic consequences of informal institutions. Third, this paper deeply examines the influence mechanism and action path of the above relationship, which provides fresh insights into understanding how regional integrity system plays a role in corporate violations at the micro level.
This paper gets several policy implications. First, regulatory authorities should attach importance to the construction of integrity, promote the long-term and high-quality development of integrity construction, cultivate a good social integrity environment, and appropriately use informal systems such as integrity to supplement, support and enhance the formal systems. Second, social organizations should give full play to the role of social organizations as a link between the government and enterprises, cooperate with the implementation of government departments’ policies, cultivate a good business credit environment, and promote the self-discipline of enterprises. Third, enterprises can employ a reasonable number of female executives, introduce institutional investors, hire high-quality auditors and promote media attention to restrain the insider’behaviorand reduce corporate fraud.

Key words: regional integrity, corporate fraud, influence mechanism

摘要： 如何抑制企业违规行为,进一步提升上市公司质量,是理论界和实务界共同关注的焦点问题。本文从非正式制度的视角,采用中国城市商业信用环境指数(CEI)度量地区诚信建设水平,选择2010—2019年中国沪深A股上市公司作为样本,实证检验了地区诚信建设对企业违规行为的影响。研究发现:地区诚信建设能够显著抑制企业违规行为,这一结论在使用工具变量法等一系列内生性和稳健性检验后依然成立。考察影响机制检验发现,在女性高管比例越低、机构投资者持股比例越高、审计质量越差和媒体关注度越高的公司中,地区诚信建设对企业违规的抑制作用更加显著。我们进一步考察了地区诚信建设对企业违规的影响路径,研究发现,地区诚信建设通过缓解企业融资约束、提升内部控制质量两条路径对企业违规行为产生影响。本文将非正式制度中的地区诚信建设与企业违规相结合,丰富了这两个领域的相关研究,为抑制上市公司违规行为提供了新的线索与思路。

关键词: 地区诚信建设, 企业违规行为, 影响机制