Do Directors’ Network Positions Affect Corporate Fraud?

Abstract

Corporate fraud poses a significant obstacle for sustainable business development. Drawing on social network analysis, this paper used data originated from Chinese-listed companies from 2009 to 2022 and found that directors’ network position significantly mitigates corporate fraud. Mechanism tests indicated that the quality of external auditors and internal control play a mediating role in this relationship. Further analysis showed that the network positions of independent directors, non-independent directors, and female directors individually inhibit the inclination of corporate fraud when considering various types of directors. Of note, the busy director hypothesis was not applicable in explaining the impact of directors’ network position on corporate fraud. This study provides a new approach to improving the sustainability of enterprises in newly emerging markets via the analysis of director networks. It is also beneficial to the research on director networks and corporate fraud in companies, offering insights for corporate governance and fraud prevention in companies and regulatory agencies.