First, it presents the background and related literature on corporate fraud. These literatures present how corporate fraud reduces market value and increases the cost of equity. Second, it presents the context of the Chinese stock market and regulators which are different from those in developed countries. Since the company's financial information cannot be fully reflected by the stock price in China's inefficient stock market, an alternative debt financing perspective has been proposed by several researchers. On the other hand, the increasing frequency of corporate fraud leads to questioning the credibility of regulators and it is therefore necessary to investigate the long-term influence of fraudulent behavior on company activities. Third, it introduces the background of Chinese banks and the importance of bank loans for enterprises. It is emphasized that bank loan plays an important role in enterprise debt financing and the decrease in the quantity and quality of loan contracts will affect the future performance of the enterprise. Furthermore, it documents the negative effect of corporate fraud on the cost of debt due to credit risk and information asymmetry (Karpoff et al., 2008; Kravet and Shevlin, 2010). Credit risk will lead to lower expected future cash flows via increased default risk, and information asymmetry will increase monitoring costs via increased uncertainty about future cash flows. These two effects translate into higher debt costs via an increase in borrowing interest.