Can common institutional ownership deter corporate fraud? Evidence from China

Owing to the increasing trend of common institutional ownership (CIO) in China's stock market, its influence on corporate governance has become increasingly significant. Based on panel data of listed companies in China from 2010 to 2021, this study employs the two-stage least squares (2SLS) approach to examine the influence of CIO on corporate fraud. The findings indicate that CIO substantially deters corporate fraud. In addition, the aforementioned negative association is more pronounced in firms with higher internal control quality than in those with lower quality. Likewise, CIO's deterrent impact on corporate fraud is significantly greater in state-owned enterprises than in private firms.