Shining diamonds: innovation that outperforms peers and corporate financial misconduct

Purpose The purpose of this study is to provide insight into how innovation that outperforms peers (IOP) affects corporate financial misconduct. To this end, on the basis of fraud triangle theory, we develop a theoretical relationship between the two and argue that IOP has an inhibitory effect on corporate financial misconduct. Design/methodology/approach On the basis of empirical data from Chinese listed companies from 2007–2023, we conduct a series of tests to examine whether, how and under what circumstances IOP affects corporate financial misconduct. Findings IOP does inhibit corporate financial misconduct. This result is validated in a series of sensitivity tests. Further analysis shows that IOP inhibits corporate financial misconduct by reducing executives' incentives to engage in fraud, reducing the opportunity under which executives are involved in fraud, and inhibiting executives' tendency to rationalize fraud. In addition, the results of cross-sectional tests show that the negative impact of IOP on corporate financial misconduct is more significant when the firm is a high-tech enterprise, with a greater balance of power among shareholders, lower supplier concentration and greater consumer confidence. Originality/value First, by examining the impact of IOP and corporate financial misconduct, we enrich and extend the literature on the antecedents of corporate financial misconduct. Second, by theoretically and empirically validating the relationship between IOP and corporate financial misconduct, we extend the literature related to the economic consequences of IOP. Finally, we extend fraud triangle theory to a wider range of applications and provide new perspectives and strategies for further research and intervention in corporate financial misconduct.