Table. 2 Variable definitions

 Fraud

Propensity for corporate fraud equals 1 if the company is involved with one or more fraud incidents in a year, and 0 otherwise.

 Fre

Frequency of corporate fraud, denoting the total number of fraud events the company is involved with within a year.

 Multi

A dummy variable. If the company has two or more large shareholders with more than 10% ownership, the variable equals 1; otherwise, it equals 0.

 Size

Firm size equals to the natural logarithm of total assets.

 Lev

Firm leverage equals to total assets divided by total liabilities.

 Roa

Return on assets, which equals net profit divided by total assets.

 Big10

Audit office. If the auditing company is one of the ten largest audit firms according to the ranking table of China’s top 100 accounting firms annually published by the CICPA, this variable equals 1; otherwise, it equals 0.

 Ana

Number of analysts. This variable equals the natural logarithm of the number of analysts plus 1.

 Lnborad

Board size. This variable equals the natural logarithm of the number of directors on a company’s board.

 Dual

A dummy variable. If the company’s CEO concurrently serves as the chair of its board, this variable equals 1; otherwise, it equals 0.

 Turnover

The average daily total share turnover ratio equals the average value of the daily turnover rate of the total number of shares during the year.

 Scfc

Separation of cash flow right from control right equals the difference between cash flow right and control right divided by control right.

 Year_Effect

Yearly dummy variable.

 Industry_Effect

Industrial dummy variable.

 Info

Information asymmetry is measured by analyst forecasting dispersion. This variable is calculated as ln(1 + standard deviation of analyst forecast EPS divided by the absolute value of the actual earnings per share of the companies).

 Occ

Capital occupation is calculated as other receivables divided by total assets.