Research and improvement of fraud identification model of Chinese A-share listed companies based on M-score
| DOI | https://doi.org/10.1108/JFC-12-2019-0164 |
| Published date | 09 March 2020 |
| Date | 09 March 2020 |
| Pages | 566-579 |
| Subject Matter | Accounting & Finance,Financial risk/company failure,Financial crime |
| Author | Wanting Lu,Xiaokang Zhao |
Research and improvement of
fraud identification model of
Chinese A-share listed companies
based on M-score
Wanting Lu and Xiaokang Zhao
Glorious Sun School of Business and Management, Donghua University,
Shanghai, China
Abstract
Purpose –The purpose of this paper is to start with the background of the construction of the M-score
model, find the variablesthat can represent the fraud characteristics of Chinese companies,and use the data of
ChineseA-share listed companies to modify the M-scoremodel.
Design/methodology/approach –In this paper, the fraud behaviorof Chinese enterprises that M-score
cannot detect is summarized as the basis of adding variables. Then, based on the data of Chinese listed
companies, a modified M-score model including nine variables is constructed by the logistic regression
method based on Wald.
Findings –Based on the original8 variables of M-score, this paper adds 10 new variables that can represent
the fraud characteristicsof Chinese listed companies, and finally, constructs a modified M-scoremodel with 9
variables. Results indicated that indexes such as gross profit margin, fixed assets depreciation rate, equity
concentrationand audit opinion can characterizethe financial fraud of Chinese listed companies.
Practical implications –The modified M-scoremodel based on the characteristics of Chinese enterprises’
fraud is more suitablefor Chinese market, which can help investors avoidfraud risks, protect their own rights
and interestsand reduce losses.
Originality/value –Starting from the background of the model, this paper looks for variablesthat can
characterize the characteristics of fraud in Chinese listed companies. Then, subdivides the researchsamples
into specificfiscal years in whichfraud occurs, so that the modified M-score model can be more suitable for
the Chinesemarket.
Keywords Financial fraud, M-score, Fraud identification model, Chinese listed companies
Paper type Research paper
1. Introduction
Since the establishment of China’s securitiesmarket in the early 1990s, the market scale has
been expanding and the system has been improved.However, the problem of financial fraud
has always been accompanied by the development of the capital market. For example, the
financial fraud of Shenzhen YuanYe and QiongMinYuan in the 1990s, the profit
manipulation cases of DongFang Electronics and YinGuangXia in this century and the
fraud events of JinYa technology and KangMei pharmaceutical in the past two years have
once disturbed the order of the capital market. Financial fraud has become a common
concern of the practitioners,capital market regulators and academia.
Grateful acknowledgment should be made to DongHua University for the financial support with the
project No. 108-10-0108179.
JFC
28,2
566
Journalof Financial Crime
Vol.28 No. 2, 2021
pp. 566-579
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-12-2019-0164
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