Public Health, Safety, and Environmental Risk Exposure and Corporate Fraud

This study reveals that the risk exposure of Chinese A-share listed companies with respect to public health, safety, and environmental (HS&E) concerns is associated with an increase in fraudulent behavior. Based on the reflection effect and the loss aversion effect posited by prospect theory, we demonstrate that firm-specific HS&E risk exposure increases the firm's risk-taking and propensity to disclose good news, thereby increasing the likelihood of the firm engaging in fraudulent activities. In addition, from the perspectives of motivation and governance, our research further demonstrates that the impact of HS&E risk exposure on corporate fraud is more pronounced in companies that are characterized by lower executive compensation, lower environmental, social, and governance (ESG) performance, lower independent director network centrality, and a lower proportion of members of the Communist Party of China among executives.