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Resource constraints, innovation capability and corporate financial fraud in entrepreneurial firms

Wenwen An (School of Management, Tianjin University of Technology, Tianjin, China)
Yuehua Xu (Lingnan (University) College, Sun Yat-Sen University, Guangzhou, China)
Jianqi Zhang (Lingnan (University) College, Sun Yat-Sen University, Guangzhou, China)

Chinese Management Studies

ISSN: 1750-614X

Article publication date: 7 February 2018

Issue publication date: 22 March 2018

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Abstract

Purpose

Previous studies have produced inconsistent findings regarding the effects of resource constraints on corporate illegal behavior. This study aims to explore how entrepreneurial firms can overcome the difficulties generated by resource constraints.

Design/methodology/approach

Drawing on insights from general strain theory and focusing on listed entrepreneurial firms, this study proposes that failure to obtain enough resources through listing generates strain in the managers of listed entrepreneurial firms, driving them to resort to corporate financial fraud as a solution. Nevertheless, such relationships between resource constraints and the likelihood of corporate financial fraud can be weakened by innovation capability, because innovation capability can generate more confidence in their managers and relieve their strains, thereby dissuading them from engaging in corporate financial fraud.

Findings

According to our empirical results, both financial and human resource constraints are positively related to the likelihood of corporate financial fraud in listed entrepreneurial firms, but such effects can be mitigated by innovation capability.

Practical implications

This study provides practical implications for both regulators and managers by indicating that although entrepreneurial firms with resource constraints are more likely to commit financial fraud, innovation capability could be a strategic approach to enhance managers’ confidence and relieve the strain.

Originality/value

Our study contributes to the literature by enriching our understanding of the consequences of resource constraints in entrepreneurial firms and highlighting the strategic importance of innovation capability in mitigating such effects.

Keywords

Acknowledgements

This work was supported by the National Natural Science Foundation of China (No. 71302100 and No. 71572204), and the Key Research Project of Guangdong Province (No. 2016WZDXM001).

Citation

An, W., Xu, Y. and Zhang, J. (2018), "Resource constraints, innovation capability and corporate financial fraud in entrepreneurial firms", Chinese Management Studies, Vol. 12 No. 1, pp. 2-18. https://doi.org/10.1108/CMS-02-2017-0024

Publisher

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Emerald Publishing Limited

Copyright © 2018, Emerald Publishing Limited

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