Publication Type

Journal Article

Version

acceptedVersion

Publication Date

11-2023

Abstract

Previous studies on corporate misconduct have focused mainly on preventing misconduct or remedying it after detection, but it remains unclear how misconduct can be effectively detected in the first place once it occurs. We apply the good faith perspective in the context of China, which represents a weak institutional environment, and argue that the ability of culpable leaders to conceal information may delay misconduct disclosure because such ability helps maintain the good faith of regulators. Moreover, we argue that because the regulators have faith in professionals (external auditors, institutional investors, and securities analysts) whose skills are in fact often underdeveloped in detecting misconduct in weak institutional environments, the impact of managerial concealment on disclosure delay becomes stronger when fraudulent firms are followed by such professionals. Using a sample of Chinese public firms involved in financial misconduct, we find support for these arguments-that is, compartmentalization in governance positions, which enhances culpable leaders' ability to conceal misconduct, delays public disclosure by regulators. Furthermore, the relationship becomes stronger when the misconduct goes undetected by credible professionals.

Keywords

time-to-enforcement, compartmentalization, professional monitoring, good faith perspective, misconduct in a weak institutional environment, China

Discipline

Asian Studies | Business Law, Public Responsibility, and Ethics | Strategic Management Policy

Research Areas

Strategy and Organisation

Publication

Journal of Management

Volume

49

Issue

8

First Page

2549

Last Page

2594

ISSN

0149-2063

Identifier

10.1177/01492063221108931

Publisher

SAGE Publications (UK and US)

Copyright Owner and License

Authors

Additional URL

https://doi.org/10.1177/01492063221108931

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