Accounting fraud and corporate sustainability: Chinese listed companies
| Date | 11 May 2023 |
| Pages | 558-574 |
| DOI | https://doi.org/10.1108/JFC-02-2023-0035 |
| Published date | 11 May 2023 |
| Author | Md Jahidur Rahman,Jiadan Xuan,Hongtao Zhu,Md Moazzem Hossain |
Accounting fraud and corporate
sustainability: Chinese
listed companies
Md Jahidur Rahman and Jiadan Xuan
Department of Accounting, Wenzhou-Kean University, Wenzhou, China
Hongtao Zhu
Accounting and Finance, The University of Edinburgh, Edinburgh, UK, and
Md Moazzem Hossain
Murdoch Business School, Murdoch University, Perth, Australia
Abstract
Purpose –The purpose of this study is to determine the relationship between accounting fraud and
corporatesustainability.
Design/methodology/approach –Companies listed on the Shenzhen StockExchange in 2019 are used
to estimate a pooledordinary least square regression model usingpanel data. Accounting fraud is represented
by accounting disclosure, which is measuredby its quality and timeliness, while corporate sustainability is
measuredby earnings management and corporate socialresponsibility.
Findings –Empirical findings support the hypothesis that the quality and timeliness of accounting
disclosurehave a statistically favorable impact on the managementof company earnings and corporate social
responsibility, respectively. Accounting fraud also has an impact on the sustainable development of the
company.
Originality/value –Although the inferences of this study are limited to Chinese listed companies, this
study may interestother scholars to explore similar topics.
Keywords Earnings management, Timeliness, Disclosure quality, Corporate social responsibility,
Corporate sustainability, Accounting fraud
Paper type Research paper
1. Introduction
Accounting fraud has always been a concern because its occurrence can lead to the loss of
many stakeholders (Goldman et al.,2012). The different motives of companies cause
different types of accounting fraud. For example, various methods are used to gain illegal
profits from taxes or to improve the reputation of enterprises. Among these types, the most
common is accounting disclosure,which is the publication of company information that can
help stakeholders make financialdecisions. Timeliness and quality are the main factors that
determine the reliability of accounting information (Ahamed, 2020). In addition, accounting
disclosure also has an important impact on enterprise transparency (Bushman and Smith,
2004). High financial transparency can enable the effective company management
(Rutherford, 2003).
However, various executivesmisunderstand the value of information disclosureand may
modify the financial statements to deceive investors into investing in the company with
false data and information.Earnings management (EM) may be carried out by changingthe
financial informationin the accounting disclosure(Lobo and Zhou, 2001). On the other hand,
JFC
31,3
558
Journalof Financial Crime
Vol.31 No. 3, 2024
pp. 558-574
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-02-2023-0035
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
accounting informationdisclosure also affects corporate social responsibility(CSR), because
accounting information includes financial and environmental data. The combination of
these two can have different effects on society. By fulfilling CSR, corporations can be
conscious of their effect on all parts of society.For the company to be irresponsible for acts
that severely endanger the environmentand society is unreasonable (Ross, 2017). Success in
social and economic aspects indicates that enterprises can properly determine the
opportunities and obligations for sustainable development (Baumgartner, 2014). CSR is,
thus, a social aspect that can reflectcorporate sustainability.
In European and American systems, the concept of sustainable development at the
macroeconomic level is based on three principles: environmental integrity, economic
prosperity and social equity (Grimaldi et al.,2020). In Greece, stakeholders can evaluate
corporate sustainability by referring to its EM (Cohen and Malkogianni, 2021), which can
reflect the company’s economicaspects.
In China, given the economic development,various problems on accounting fraud follow
and increasingly occur for listed companies (Sun and Ren, 2017). One of the most basic
information of accounting disclosureis the companies’earnings, which can determine their
future. As such, EM is widely used because of its significant role in corporate earnings and
future value (Sial et al.,2018). In addition, several Chinese scholars found that enterprises
with high performance in CSR are less likely to participate in fraudulent activities
(Liao et al., 2019). The Chinese Government believes that CSR is an important condition to
promote the harmonious developmentof society (Hung et al., 2013). To avoid the continuous
occurrence of fraud, China attempts to transition the quantitative economic goal into a
sustainable economic one based on society,economy and environment, as well as adds CSR
to the legal system (Shen et al., 2020).
Enterprises that only care about financial disclosure find that their lack of
comprehensive understanding can eventually affect corporate sustainability. Therefore, to
realize this enterprise goal, we consider the impact of the society, environment and the
economy (Lozano et al., 2017).Before 2016, few studies discuss the aspects ofcorporate fraud
in China and only examine the determinants or consequences of CSR and accounting fraud.
Fewer still explore these determinants and influences together (Cumming et al.,2016). The
relationship between accounting fraud and corporate sustainability is, thus, unclear.
However, the sustainabledevelopment of enterprises is related to not only EM but also CSR.
Yet previous studies generally pay attention to the impact of environmental disclosureand
industrial pollution on CSR, while ignoring the influences of human rights (García-S
anchez
et al.,2020).
Therefore, we explore the relationship between accounting fraud and corporate
sustainability in Chinese listed companies. Among various types of accounting fraud, we
use accounting disclosureas representation. This study considers the timeliness and quality
of disclosure as the determinants of accounting disclosure and the EM and CSR as the
economic and social factors for corporate sustainability. By using the impact of timeliness
and quality of disclosure on EM and CSR, this study infers the relationship between
accounting fraud and sustainabledevelopment of enterprises.
An excellent company must not only control their economic activities on the premise of
abiding by the law but also fulfill its social responsibility(Liao et al., 2019). Therefore, when
discussing the impact of accounting fraud on corporate sustainability, this study increases
the factors of human rights to measure the CSR performance and more comprehensively
reflect corporate sustainability. This measure differentiates this study from the previous
literature on CSR.
Accounting
fraud and
corporate
sustainability
559
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