Does Audit Committee Chairs' Collectivism Matter? The Impact of Rice Culture on Financial Fraud

ABSTRACT This paper investigates whether audit committee (AC) chairs' collectivism has an impact on corporate financial frauds. Based on the rice theory of culture, we identify the AC chairs born in rice‐planting regions as those from collectivist cultures. Using a sample of Chinese listed firms from 2013 to 2019, we find that firms with collectivist AC chairs are less likely to commit financial frauds. This result suggests that collectivism motivates AC chairs to focus on organizational interests and curb managerial misconduct in financial reporting at the expense of shareholders' wealth. This effect is strengthened by AC chairs' tenure, accounting expertise, and reputation. Further analysis suggests that collectivistic AC chairs enhance internal control quality, hire a more competent auditor, and exhibit greater risk aversion. Moreover, the relationship is more salient when the AC chairs share the same culture with the CEO or when other AC members also have collectivistic tendencies.