Corporate fraud is a serious financial problem which attracted global attention of how banks enhancing their ability to corporate with those fraudulent enterprises. There are many instance in the world such Enron Corporation and WorldCom case. In China, there are increasing instances of corporate fraud emerged, where the capital market has been intensively impacted. About one-fifth of Chinese firms have been punished by China Securities Regulatory Commission (CSRC) for financial fraudulent behaviors. Corporate fraud is one category of financial fraud (Ngai et al, 2010). Wang et al. (2006) demonstrated the fraud as “a deliberate act that is contrary to law, rule, or policy with intent to obtain unauthorized financial benefit.” However, there is no unitive definition of financial fraud. Economically, corporate financial fraud will damage the benefit of investors and destroy the marketing faith。Due to the changing market and corporate structure, it is important to continuing lunch a research more widely and deeply.? Previous researches have extensively study on the consequences of corporate fraud in terms of the causes, corporate mechanisms and characteristic detections of corporate fraud (Beasley, 1996; Chen et al., 2005a, b; Dechow et al., 1996; Johnson et al., 2009; Karpoff and Lott, 1993; Karpoff et al., 2008; Zhang and Ma, 2005). Results have extensively documented in both theoretical and empirical level.
Although particular regulators have been extensively implemented to response to corporate financial supervision such as the Sarbanes–Oxley Act, and the NYSE and Nasdaq proposals. These regulators imposed various corporate governance restrictions for public firms trading in the United States. However, the number...
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... the relationship between corporate fraud and bank loans are lacked to be investigated.
This paper is to extand the reasearch on the effect of corporate fraud on the cost of debt. To investigate costs of debt, we focus on bank loan contracting. Bank loan contracting includes price and uprice elements. This paper mainly focus on the price elements that is interest rate. It is a ideal element to represent the costs of debt. In addtion, the unpricing elements will also be included but just as control variables to assist analysis and interpretation.
Therefore, this section will firstly review the related background and literatures about corporate fraud , and then provide literatures addressing the importance of bank loans to examine the effect of corporate fraud. Finally, it will review extand literatures about how the corporate fraud influences bank loan contracting.
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