Can Core Competence Help Enterprises Reduce Corporate Fraud?

ABSTRACT This paper empirically examines the impact of core competence on corporate fraud by constructing the measurement index of core competence through textual analysis, using Chinese A‐share listed companies from 2007 to 2022 as a research sample. It is found that: core competence can effectively reduce corporate fraud, and the conclusions still hold under a series of robustness tests. The mechanism test reveals that core competence can reduce performance pressure, improve internal control quality and enhance external attention, thereby reducing the motivation and opportunity for misconduct and binding corporate fraud. Further study finds that: the binding effect of core competence on corporate fraud is more significant in non‐state‐owned enterprises and enterprises in a well‐established external legal environment. Core competence is more significant in reducing disclosure violations and operational violations compared to executive violations. The findings of this paper not only enrich the literature on the economic consequences of core competence and the factors influencing corporate fraud, but also have significant theoretical and practical implications for how to avoid corporate fraud.