Does mutual fund investment influence accounting fraud?

Yang Wang, John K. Ashton*, Aziz Jaafar

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review


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.

Original languageEnglish
Pages (from-to)142-158
Number of pages17
JournalEmerging Markets Review
Publication statusPublished - 31 Dec 2018

Bibliographical note

Funding Information:
Yang Wang acknowledges financial support from the China Scholarship Council (No. 201408060195 ).

Publisher Copyright:
© 2019 Elsevier B.V.

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