From Financial Misdemeanants to Recidivists: The Perspective of Social Networks

Acts of financial misconduct in business affect firms in many negative ways. Therefore, why do certain misdemeanants repeatedly commit these acts? We suggest that financial misdemeanants with different social networks will perceive the costs and benefits of committing financial frauds differently, thereby affecting the likelihood of committing financial frauds in the future. To be specific, we suggest that politically connected misdemeanants are less likely to recommit financial frauds, while misdemeanants at interlock network center are more likely to recommit financial frauds. In addition, we propose that misdemeanants are less likely to recommit financial frauds when their partners in the interlock network community are punished for financial frauds. To test our theory, we collected panel data from Chinese listed firms from 2005 to 2014 and employed event history analysis (EHA).