Hypothesis Of Four Factors For Fraudulent Financial Reporting And Its Empirical Test

Over the past 10-plus years, China has been hit by a rising number of scandals of fraudulent financial reporting in the securities market, which have not only inflicted heavy losses on investors, but also undermined the principles of "fairness", "impartiality" and "openness", upon which the security market depends for its survival and development, and shaken and frustrated the confidence of investors.In light of this situation, the academic community conducts persistent research of fraudulent financial reporting, with considerable results obtained. Through a search of related literature, we have found that previous studies mainly focused on normative research and case studies, with scant empirical analysis. Moreover, there are at least four questions on which people have yet to reach consistent conclusions. These questions are: (1) Is it possible to develop a new theory to account for the mechanism of the formation of fraudulent financial reporting? (2) What are the influencing factors of fraudulent financial reporting in China? What are the characteristics of the financial variables and corporate governance variables of companies with fraudulent financial reporting? (3) Are the current governance measures effective? Are independent directors improving the degree of conservation of accounting policies, thereby reducing the occurrences of fraudulent financial reporting? (4) How can fraudulent financial reporting be effectively governed? Is it likely to accomplish the whole task at one stroke?In an attempt to seek answers to the above questions, this paper adopts the method of combining normative studies with empirical analyses, and mainly employs epistemology, the game theory and induction to propose a hypothesis of four factors for fraudulent financial reporting (four factors - culture, motive, opportunity, and trade-off), and then uses methods such as the mean T testing and plural regression analysis to investigate the influencing factors of fraudulentpolicies, thereby reducing the opportunities of fraudulent financial reporting.Chapter 6: Research Conclusions and Recommendations. This chapter points out the academic contribution, limitation and future expansion opportunities of the research. On this basis, it comes up with four practical policy recommendations: (1) Build four lines of defense against fraudulence to put fraudulence under siege; (2) Increase of the cost of fraudulence; (3) Strengthen supervision and administration; (4) Improve international cooperation in the fight against fraudulence.This paper is innovative in the following four areas: (1) It proposes a hypothesis of four factors for fraudulent financial reporting, suggesting that when the four influencing factors of culture, motive, opportunity and trade-off are present, fraudulent financial reporting will occur; (2) The T test and Logistic regression analysis indicates that enterprises suffering tremendous financial pressure usually have strong motive for fraudulence, while corporate governance failures tend to increase the possibilities of the occurrence of fraudulence; (3) The single-variable analysis shows that compared with companies without independent directors, companies with independent directors have lower discretionary accruals; the multivariate analysis (OLS) reveals that discretionary accruals and the proportion of independent directors exhibit a U-shaped curvilinear relationship; (4). Companies which have been penalized by government regulators for fraudulent financial reporting in previous years tend to have sounder accounting policies.Of course, this paper at least has the following limitations: (1) The number of samples is small for the analysis of the influencing factors of fraudulence; (2) Undetected fraudulence and auditing-detected fraudulence are not included in the research sample; (3) Cross-sectional Jones and its modified model are not necessarily suitable for China.Opportunities for future expansion probably include: (1) The problem of text-based fraudulent financial reporting; (2) The influence of informa...