TITLE:
Investor Sentiment and Corporate Financial Fraud
AUTHORS:
Siyu Li
KEYWORDS:
Investor Sentiment, Financial Fraud, Chinese A-Share Listed Companies
JOURNAL NAME:
Modern Economy,
Vol.16 No.8,
August
18,
2025
ABSTRACT: In a market economy, investor sentiment may encourage managerial financial fraud to influence stock market prices, and generate profits. In this study, I examine whether investor sentiment induces financial fraud and investigate the differential impacts for various categories of firms. Using data on 1670 Chinese A-share listed companies for 2013-2022, I construct a probit model to analyze the relationship between investor sentiment and corporate financial fraud. The findings indicate that the likelihood of listed companies engaging in financial fraud is lower during periods of high investor sentiment. Moreover, I find that investor sentiment exhibits a stronger inhibitory effect on financial fraud in nonstate-owned enterprises than in state-owned enterprises. Financing constraints partially mediate this relationship, whereas the internal control index demonstrates a masking effect.