We study how bank monitoring affects corporate fraud in China. Financial We study how bank monitoring affects corporate fraud in China. Financial misreporting is less prevalent in provinces with more developed banking sectors. A natural experiment using the staggered liberalization of the...

We propose a model of bank monitoring and borrower financial misreporting. Using the staggered liberalization of the banking sector in China as a natural experiment, we find that, consistent with the model’s prediction, entry by more efficient foreign banks reduces corporate misreporting...