Family business and corporate fraud in a transitional economy

Research on family firms often assumes them to be long-term oriented and care about their reputation, but this assumption is not investigated in transitional economies. We propose that family firms in transitional economies may commit more corporate fraud compared to other privately-controlled firms. Due to the lack of legitimacy, family firms face more resource limitations and thus have a lower possibility of survival, which leads them to risk committing fraud in order to survive. To verify our logic, we explore the tendency of family firms to engage in fraud when they are subject to greater survival pressures, when they have social-political sources of support, and when the intensity of external monitoring changes. Our argument is supported by examining publicly listed private firms in China from 2003 to 2015. Our research contributes to the literature on family businesses by showing how institutional contexts impact family business attributes, and to research on corporate fraud by understanding the influence of organizational legitimacy and family governance.