2024/09/03 by Minwen Li, Tanakorn Makaew, Andrew Winton · 2 citations
Business, Management and Accounting · Economics, Econometrics and Finance · #Accounting #Banking stability, regulation, efficiency #Business #China #Corporate Finance and Governance #Credit Risk and Financial Regulations #Economics #Financial system #Monetary economics #Political science
paper · doi:10.1287/mnsc.2022.02414
published in Management Science 71(5), 4223-4245 (Institute for Operations Research and the Management Sciences)
openalex publication_date 2024/09/03 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/31
We propose a model of bank monitoring and borrower financial misreporting. Using the staggered liberalization of the banking sector in China as a natural experiment, we find that, consistent with the model’s prediction, entry by more efficient foreign banks reduces corporate misreporting fraud. Fraud reduction is greatest among borrowers of foreign banks, but fraud also drops among borrowers of domestic banks, suggesting a spillover effect. As predicted by the model, fraud reduction is greatest for borrowers with higher levels of fixed assets or lower levels of current assets. Our evidence suggests that improved bank monitoring reduces financial misreporting. This paper was accepted by Tomasz Piskorski, finance. Funding: M. Li acknowledges support from the National Science Foundation of China [Project 71402078] and the Social Science Foundation of Tsinghua University [Project 2013WKZD004]. Supplemental Material: The online appendices and data files are available at 10.1287/mnsc.2022.02414 .