Investigating the Role of Executive Intrafirm Alumni Networks in Top Management Fraud

Abstract

To explore factors that influence the likelihood of committing fraud in the construction industry, this study concentrated on senior executives and tested whether some characteristics at the individual and firm levels have impacts on the likelihood of fraud committed by top management. Based on social network theory, this study first proposes that intrafirm alumni networks may increase the probability of senior executives engaging in corrupt behavior. Then the study explored whether the effect of executives' alumni networks on their wrongdoings is influenced by external and internal corporate governance measures. To verify the hypotheses, this study collected data on 2,017 senior executives from 118 construction companies in China from 2013 to 2021. Because of the multilevel structure of the data, hierarchical linear modeling was used. The results show that alumni networks have a significant positive effect on top management fraud. The effect is weakened by external auditing, altered by board independence, and strengthened by the size of the board of directors and the size of the supervisory board. This multilevel research contributes to advancing the understanding of managers' fraudulent behavior within an organization and extends the literature on social networks and corporate governance in the construction industry.