Abstract Using path analysis, this study empirically tests the direct effect and indirect effect of size of board of directors on financial fraud based on the monitoring function and knowledge synergy effect of board of directors. Empirical results indicate that: 1) the direct relationship between board size and financial fraud is negative. What’s more, with enlarging board size, it’s marginal monitoring effect can be enhanced and then became smaller; 2) corporate performance is negatively related to fraud, and the indirect links between BOD size and the likelihood of financial fraud is negative, which means the larger BOD size is, the higher corporate performance is, consequently, the lower the likelihood of financial fraud is. These results implicate that we need to replace non-professional directors with professional directors.
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Received: 03 December 2007
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