"Conniving" or "controlling": How does banking competition impact private enterprise violations?

• First, it enriches research on the economic consequences of competition in the banking market. This study clarifies and thoroughly explains the logic of macro-financial influence on micro-enterprises from both, positive and negative perspectives. • Second, based on the reality of China's financial regulation, and combined with empirical tests, it fully explains why banking competition does not "connive" private enterprise violations. The conclusions of this study confirm the positive effects of banking competition and enrich research on the dividend effect of banking competition. • Third, it further deepens the research on the "rationalization" element of the fraud triangle theory. Studies have found significant differences in individual rationalization tendencies, so that control strategies for "rationalization" can be developed to discourage enterprise violations. This study examines the impact of banking competition on private enterprise violations, using a sample of A-share listed private enterprises in China from 2011 to 2021. The study found that the increased level of banking competition is conducive to the realization of the capital and the supervisory effects that banks are supposed to have, which, in turn, have a "controlling" effect on private enterprise violations. Banking competition has yet to fulfil its potential "conniving" effects, which is closely related to China's high level of financial regulation. In addition, based on the Fraud Triangle Theory, the study found that the financial accounting background of managers is an important factor influencing the tendency for "rationalization". In other words, the disincentive effect of banking competition on violations is stronger when a relatively lower proportion of management has a financial accounting background. [ABSTRACT FROM AUTHOR]