This study examines whether firms’ financial fraudulent behavior varies when local firms are led by nonlocal CEOs. Building on the social identity theory, we argue that nonlocal CEOs, due to their different location-based social identities, are perceived as outgroup leaders and face intergroup bias from stakeholders within local firms. Therefore, nonlocal CEOs are more likely to conform to laws and regulations and reduce corporate financial fraud to enhance their legitimacy in leading local firms. Using panel data on Chinese listed firms from 2007 to 2020, we find a significantly negative correlation between nonlocal CEOs and the likelihood of corporate financial fraud. Furthermore, our moderating analysis indicate that the negative effect of nonlocal CEOs on corporate financial fraud is stronger (a) for CEOs who have neverwon awards, (b) in firms with poor financial performance and (c) in regions with tight cultures. Additional mechanism tests indicate that nonlocal CEOs’ outgroup identity is more prominent in regions with low regional dialect diversity and local private-owned enterprises. Overall, these findings suggest that choosing a nonlocal CEO warrants attention from the firm’s top management teams and stakeholders.

The side effect of automation on the economy has been discussed frequently, but little is known regarding its political consequences. This paper examines the causal effect that automation induces political costs for the local government. By combining the national individual-level panel data of political trust with the prefecture-level robot exposure rate in China biennially during the period 2012– 2018, we find that the development of automation would incur lower political trust in the Chinese local government. Furthermore, the impact may result from the risk of unemployment, intensified pessimism about local government, higher downside risk, and declining group participation, providing a few channels for the automation process to affect citizens’political trust. This paper provides empirical evidence for the impact of automation and the source of political legitimacy, contributing to the literature about automation by emphasizing the crucial role of government in coping with the technological progress and making good use of endogenous creative destruction.