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Compares the economic history of china and Europe over the past 2,000 years in an attempt to understand the countries’ present economic positions. Discusses how China’s political and economic system impeded the development of a commodity economy and led to the development of agriculture while Europe’s commodity economy fostered the advancement of science and technology.

Confucianism is dead! Confucianism is obsolete! Confucianism is passé! For at least the past 30 years the government of China has taken a strong stand against Confucianism. Yet it is impossible to do business in China and not feel the effects of Confucian philosophy. For example, strong feelings of a social hierarchy are still present in China. The Confucian ethical structure, with its lack of civil law, still influences current thinking. A strong sense of family as the basic unit of production, with its rights of inheritance and views of the extended family, still pervades much of Chinese thought. If Confucianism is officially gone, its influence is still strong. Identifies the aspects of Confucianism which are relevant to those seeking to understand the Chinese business environment.

Confucianism underpins Chinese traditional culture and the values of the Chinese people. The purpose of this study is to examine the relationship between adherence to Confucianism and corporate irregularities.

The authors use the historical numbers of Jinshi (Imperial Scholars) in the Ming and Qing dynasties within 200 km of a company's location to proxy for the influence of Confucianism on the company, presenting strong evidence that Confucianism significantly reduces corporate irregularities.

The authors' findings are robust even when criticized with alternative definitions of Confucianism, sensitivity analysis and instrumental variable regression. The authors also discover that this effect is weaker in state-owned and foreign enterprises and weakened by the influence of Western culture.

This paper brings a new traditional-cultural perspective to the understanding of corporate irregularities and contributes to the literature on culture and finance. This paper also helps the authors understand the “China Puzzle” that is China's rapid economic development under an imperfect legal system.