Mutual Monitoring: How TMT Faultlines Affect Corporate Financial Fraud

Abstract

We develop and test a theoretical model to investigate the effects of faultlines within the top management team (TMT) on corporate financial fraud. We propose that TMT faultlines can generate mutual monitoring among factional subgroups in the executive suite, which reduces fraudulent behavior. We also examine the contingent roles of subgroup configuration and the TMT members’ tenure overlap in shaping the relationship between TMT faultlines and financial fraud. The mutual monitoring effect is likely to be stronger when the TMT has a balanced subgroup configuration and shorter TMT members’ tenure overlap. We test our argument in the context of publicly listed firms in China. This article extends the mutual monitoring perspective of corporate governance and has important research implications for the corporate financial fraud literature.

摘要

本文建构并检验了高管团队(TMT)内部存在的断裂带对公司财务舞弊行为影响的理论模型。我们提出高管团队内部的断裂带能够促进高管群体内形成派系间的相互监督, 从而降低财务舞弊的发生。我们进一步研究了高管团队内部存在的小群体构成和其成员任期重叠程度在断裂带和财务舞弊关系中的调节作用。当高管团队具有更加平衡的子群体构成以及更短的成员任期重叠时, 这种相互监督的作用会更加明显。我们使用中国上市公司的数据对上述观点进行了实证检验。本研究拓展了公司治理中的相互监督理论视角, 并对公司财务舞弊相关文献具有重要的研究启示。