The ethical edge: how Confucianism in audit firms prevents corporate fraud

Purpose This study aims to investigate how Confucianism in audit firms influences corporate fraud in China. The research seeks to highlight the enduring relevance of Confucian principles in modern auditing practices, particularly in promoting effective corporate governance and underscores the global significance of informal regulations in mitigating corporate fraud. Design/methodology/approach Based on China A-share listed corporations from 2009 to 2021, this paper uses empirical analysis, including ordinary least squares, instrumental variable regressions, to investigate the relationship between auditors’ Confucian values and client fraud. Findings Results indicate that Confucianism in audit firms significantly reduces both the likelihood and incidence of fraud in audited companies. This effect is attributed to improved corporate governance and the promotion of Confucian ethics – including Loyalty, Benevolence, Righteousness, Discipline and Wisdom – in client firms. Besides, Confucianism in audit firms exerts stronger effect on client firms in the regions with poorer formal institution, and Confucianism in audit firms majorly inhibits audited firm’s information disclosure fraud. Originality/value This research uniquely contributes to understanding how external auditors’ Confucian values influence corporate behavior, extending beyond previous studies that focused primarily on the impact of Confucianism among corporate insiders.

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Publication Details

Journal
Managerial Auditing Journal
Published
2025-09-09
DOI
https://doi.org/10.1108/maj-07-2024-4419
Citations
1
Primary Topic
Ethics in Business and Education
Type
article
Field-Weighted Citation Impact
4.17
Controls
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article

The ethical edge: how Confucianism in audit firms prevents corporate fraud

Wai Yan Shum, Weiping Li, Haitao Chen, Zhongyi Xiao
1 citations
Managerial Auditing Journal
Ethics in Business and Education
4.17
article

The ethical edge: how Confucianism in audit firms prevents corporate fraud

Wai Yan Shum, Weiping Li, Haitao Chen, Zhongyi Xiao
article en
1 citations

Abstract

Purpose This study aims to investigate how Confucianism in audit firms influences corporate fraud in China. The research seeks to highlight the enduring relevance of Confucian principles in modern auditing practices, particularly in promoting effective corporate governance and underscores the global significance of informal regulations in mitigating corporate fraud. Design/methodology/approach Based on China A-share listed corporations from 2009 to 2021, this paper uses empirical analysis, including ordinary least squares, instrumental variable regressions, to investigate the relationship between auditors’ Confucian values and client fraud. Findings Results indicate that Confucianism in audit firms significantly reduces both the likelihood and incidence of fraud in audited companies. This effect is attributed to improved corporate governance and the promotion of Confucian ethics – including Loyalty, Benevolence, Righteousness, Discipline and Wisdom – in client firms. Besides, Confucianism in audit firms exerts stronger effect on client firms in the regions with poorer formal institution, and Confucianism in audit firms majorly inhibits audited firm’s information disclosure fraud. Originality/value This research uniquely contributes to understanding how external auditors’ Confucian values influence corporate behavior, extending beyond previous studies that focused primarily on the impact of Confucianism among corporate insiders.

Managerial Auditing JournalVol. 40(7)
Southwest University of Political Science & Law (CN), Sun Yat-sen University (CN), Hang Seng University of Hong Kong (HK), City University of Macau (MO), University of Hong Kong (HK)
Openalex Percentile: Top 5%
Ethics in Business and Education
4.17
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The ethical edge: how Confucianism in audit firms prevents corporate fraud — Wai Yan Shum, Weiping Li, et al. · Managerial Auditing Journal (2025) | TGRS Research Map | TGRS