Detecting the probability of financial fraud due to earnings manipulation in companies listed in Athens Stock Exchange Market
| Date | 16 June 2021 |
| Pages | 603-619 |
| DOI | https://doi.org/10.1108/JFC-04-2021-0083 |
| Published date | 16 June 2021 |
| Author | Andreas Maniatis |
Detecting the probability of
financial fraud due to earnings
manipulation in companies listed
in Athens Stock Exchange Market
Andreas Maniatis
Department of Accounting and Finance, University of Macedonia,
Thessaloniki, Greece
Abstract
Purpose –The aim of this paper is to detect whether there are companies listed in the general index of
Athens StockExchange Market that possibly conduct earningsmanipulation during 2017–2018.
Design/methodology/approach –The paper is based upon the Beneish model (M-score), which consists
of eight variables to examine the probability of financialstatement fraud related to earnings manipulation for 40
companies listed in the Athens Stock Exchange Market.Any company with an M-score 2.22 or above is likely
to be a manipulator whereas any companythat s cores2.22 or less is unlikely to conduct earnings manipulation.
Findings –After calculatingthe M-score for each company, it was found that 33 (outof 40) companies had
M-score values lower than 2.22. Therefore, 82.5% of the sample is considered rather unlikely to conduct
earnings manipulationwhereas 17.5% of the companies listed in the general index of Athens Stock Exchange
Market is likelyto manipulate its earnings.
Research limitations/implications –In this paper, all institutionsrelated to financial services were left
out of the sample because of the fact that M-score cannot provide reliable results when applied on similar
companies.
Originality/value –Beneish model offers a probability of financialfraud and can be therefore used as a
supplementarytest for auditors, fraud examiners or even national regulators such as the HellenicAccounting
and Auditing Standards Oversight Board or the Hellenic Capital Market Commission. The results of this
paper can contribute to the literature concerning financial fraud in Greece during 2017–2018 because no
relevantrecent researches have been published yet.
Keywords M-score,Financial fraud, Earnings manipulation, Athensstock exchange market, Beneish
Paper type Research paper
Introduction
Introductory comments
Companies have always dealt with fraudulent activity ever since they started running.
During recent years, many different ways have been invented to commit corporate fraud.
According to the Report to the Nations(Association of Certified Fraud Examiners, Inc, 2018)
on Occupational Fraud issued by the Association of Certified Fraud Examiners, 10% of
This paper is derived from my master thesis done under the direction of Assistant Professor Aggeliki
Samara (University of Macedonia, Thessaloniki, Greece). Therefore, I would like to express my
gratitude to my supervisor for the guidance and support during this rigorous and rewarding
experience. I would also like to thank Dr Styliani Gerani (University of Macedonia, Thessaloniki,
Greece) for her contribution in showing true interest and constant motivation in achieving academic
success.
Detecting the
probability of
financial fraud
603
Journalof Financial Crime
Vol.29 No. 2, 2022
pp. 603-619
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-04-2021-0083
The current issue and full text archive of this journal is available on Emerald Insight at:
https://www.emerald.com/insight/1359-0790.htm
fraud cases found solely in 2018 around the globe refers to financial statement fraud.
Financial statement fraud is defined as the act of misinterpreting or misstating the
published financial statementsto deliberately present false information about the company.
One of the most notorious techniques of financial fraud is earnings management, which
constitutes the use of accounting techniques and standards so as to present an overly
positive view of a company’sfinancialstatements or to hide a seemingly deficient economic
position. The execution of earnings manipulation usually involves activities such as
recognition of huge fictitious accruals, capitalization of intangible assets and recognition of
large sums of expenses duringprofitable years.
Therefore, there have been many studies in the academic literature such as Persons
(1995),Green and Choi (1997),Summers and Sweeney (1998),Beneish (1999),Spathis et al.
(2002),Kirkos et al. (2007) and Cecchini et al. (2010) concerning ways to discover whether a
company commits fraudulent activity. These famous researchers have studied and
developed scientific modelsthat examine the probability of financial statement fraud. Some
studies use linear regression models to exact significant results whereas others use neural
network and artificialintelligence models.
Scope and research questions
The purpose of this study is to examine the probability of financial statementfraud because
of earnings manipulation in Greece during 2017–2018 using Beneish model. Beneish model
(Beneish, 1999) uses eight variables created by information derived from the financial
statements (balance sheetand income statement) of the companies. The results of this study
can contribute to the literature concerning financial fraud in Greece because no relevant
recent researches have been published yet. The sample involves all company stocks that
belong to the General indexof Athens Stock Exchange Market during 2017–2018.
Structure
This paper begins by definingthe notion of financial fraud and earnings management using
published literature and information from esteemed organizations. The research
methodology then follows to describe Beneish model and the used sample, analyze the
methodology and present the results. Finally, the study wraps up with the conclusions
produced by the modeland some proposals for future studies.
Definition of financial fraud and earnings management. The subject of fraud has always
been a huge topic among the financial institutions and academic studies. There have been
many definitions of “financial fraud.”According to Koya et al. (2014),financial fraudcan be
defined as an act of misinterpretationor misstatement of the published financial reports by
financial market participants to deliberately or involuntarily provide false or manipulated
information about the company. This misleading financial information can violate any
accounting rule, regulatory rule or any type of law. The Association of Certified Fraud
Examiners defines financial statement fraud as the act of overstating the revenue, assets or
profits and understating the expenses, liabilities or losses. This type of fraud includes
timing differences between accounting dates, fictitious or understated revenues, concealed
or overstated liabilities and expenses, improper asset valuations and improper disclosures.
According to the 2018 Report to the Nations by the aforementionedinstitution, 8% of fraud
cases in companies in Western Europe (including Greece) were financial fraud, which
constitutes the third most popular type of fraudin the area. Specifically, in 2018, there were
22 fraud cases in Greek companies out of 130 cases in Western Europe. The same study
reports that a financialstatement fraud usually lasts for 24 months.
JFC
29,2
604
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