We show that fraudulent firms allocate resources differently than honest companies. Resources obtained through fraudulent means are likely to be viewed as unearned gains and are less likely to be invested in productive activities, such as recruiting talent. We posit that honest and fraudulent companies also invest in different types of innovation: honest firms pursue technically significant innovations, while fraudulent companies are likely to make smaller investments in less challenging inventive opportunities that contribute to the appearance rather than the substance of innovation. We test these predictions in a longitudinal dataset tracking the personnel recruitment and patenting activities of 467 Chinese high technology firms, all of which applied for state-funded innovation grants. We identify fraud by comparing two sets of financial books prepared by each company in the data in the same fiscal year, which are legally required to be identical but are discrepant in over 50 percent of cases, in a direction that benefits the firm. We find that relative to honest companies, fraudulent firms are more likely to receive state grants and are less likely to recruit new employees or produce important inventions in the post-grant period.
- Ph.D. MIT Sloan
- B.A. Peking University
Yanbo Wang is an associate professor of strategy and innovation at the University of Hong Kong. He conducts research on technology-based entrepreneurship, with a particular focus on the impact of institutions on startup firms’ strategic choices, organizational forms and financial performance. His current projects map the entrepreneurial landscape in China and examine the design and effect of the country’s state innovation subsidy programs.
Dr. Yanbo Wang has published in peer-reviewed academic journals such as Management Science, Research Policy, Strategic Management Journal and Administrative Science Quarterly. He serves on the editorial board of Administrative Science Quarterly and Strategic Management Journal.
Professor Wang received BA in international relations from Peking University and Ph.D. in Management from MIT. Prior to HKU, he has taught at Boston University, Cheung Kong Graduate School of Business and the National University of Singapore, where he served as a doctoral program director in strategy and policy.
- International Entrepreneurship for BBAs and MBAs (BU)
- Business Model Innovation for MBAs (CKGSB)
- Technological Innovation for BBAs (NUS)
- International Strategy for PhDs (NUS)
- Capstone Course for MGMs (HKU)
- Technological Change
- Business Model Innovation
- “Matthew: Effect or Fable?” (with Pierre Azoulay and Toby Stuart), Management Science, Volume 60 Issue 1, January 2014, pp. 92-109
- “Bringing the Stages Back In: Social Ties and Startup Firms’ Access to Venture Capital in China”, Strategic Entrepreneurship Journal, Volume 10 Issue 3, September 2016, pp. 300-317
- “Who Cooks the Books in China, and Does It Pay? Unique Evidences from Private Technology-Based Firms” (with Toby Stuart), Strategic Management Journal, Volume 37 Issue 13, December 2016, pp. 2658–2676.
- “Firm Performance and State Innovation Funding: Evidence from China’s Innofund Program” (with Jeff Furman and Jizhen Li), Research Policy, Volume 46 Issue 6, July 2017, pp. 1142–1161.
- “Social Influence in Career Choice: Evidence from a Randomized Field Experiment on Entrepreneurial Mentorship” (with Chuck Eesley), Research Policy, Volume 46 Issue 3, April 2017, pp. 636-650.
- “Fraud and Innovation” (with Toby Stuart and Jizhen Li), Administrative Science Quarterly, Volume 66 Issue 2, June 2021, pp. 267-297.
- “Good to Go First? Position Effects in Expert Evaluation of Early-Stage Ventures” (with Jiang Bian, Jason Greenberg and Jizhen Li), forthcoming, Management Science
Professor Wang has acted as a reviewer for 15 journals, including AMJ, MS, OS, and IEEE TEM. He is an editorial board member of ASQ and SMJ and serves as an external PhD examiner for the National University of Singapore. He is also an executive board member of Asian Innovation and Entrepreneurship Association (AIEA).