Cognition Bias Of Myopia And Financial Fraud

The aim of this thesis is to explain why advanced managers who have good education would carry out fraud behaviors, so as to give microfoundations to the deep understanding of the financial reporting choose and to guide the innovation of inspection mechanism design.The financial frauds in the listing corporations are unexceptional and become universal in the capital markets. Since 2000, the new fraud behaviors in the listing companies, represented by Enron Corp in USA, arouse a pubic clamor and bring about more and more serious dangers, which cause the public concern and put forward the severe challenge. American-European countries have issued the severe legal measures to reply correspondingly, its experiences and lessons are worth summarizing and drawing lessons from. Because of being new developing transition economy, our country lacks in ability in institutional improvement and supervising and is more likely to produce the behavior of practicing fraud in finance, which would do damage to the growth of China's new-developing capital market. So it has key significance in theory and practice to analyze the producing mechanism of financial frauds in the listing companies and carry on the pointed financial supervision institutional improvement which is rich in the distinct Chinese characteristics.The theories about the analysis on financial fraud in the traditional literatures have such ones as iceberg theory, triangular theory, GONE theory and trust-agency theory. These theories largely presupposed that the behavior agents are rational and made the analysis of cost-benefit as their basic logic, in addition, they also regarded the benefit of financial fraud exceeding cost as the necessary condition. In the calculating of cost-benefit, they began with the presupposition of internal causes such as motivation and greedy of behavior agents, adding to external causes such as information asymmetry, so got the producing mechanism of financial fraud. In responding measures, they put forward the severe penalty, which frighten and hinder the fraud motivation of agents by means of severe penalty. These theories analyzed the internal and external causes of behavior agents from the extensive angles, but the analysis presupposition of these theories are mostly directly given and short of explanation with micro foundation. So it is difficult for these theories to explain the reason why these financial frauds happen one after another even after America put into effect the severe Sarbanes' bill. In practice, the countermeasures directed to the severe penalty, put forward by these literatures, not only spend enormously in implement cost, but also can not produce prominent effect, which are hard to hinder the lasting behavior of practicing fraud.The theory of inconsistent temporal preference in the behavior economics holds that behavior agents have myopia cognition bias. This bias makes the temporal preference rate, which is discounting rate, would not remain unchanged, but high in short term and low in long term. The model corresponding to this presupposition of behavior agents is the one of hyperbola discounting. In this model, due to the asymmetry in the discounting structure, behavior agents would underestimate the future cost and over evaluate the spot return, which causes the excessive wrongdoings. The senior executives in listed corporations, as behavior agents, still have myopia bias, and there exists the typical contradict of temporal inconsistence between the good original intentions of those senior executives and their frauds. So this paper makes use of the theoretic framework of inconsistent temporal preference. Proceeding with characteristic of temporal preference of senior executives, this method analyzes the contradict between the long term ration of senior executives and interest temptation in short term as well as the function mechanism producing this wrongdoing of excessive fraud.The thinking logic in this paper is that behavior agents, the senior executives in listing corporations, have myopia cognition bias in different degrees, so when making long-term career plan, they are rational and can judge clearly the spot benefit and future cost that is caught and sentenced if they practice financial fraud, but when making decision of short term financial report, due to the effect of myopia bias, they would underestimate the future cost of financial fraud and act undue wrongdoings, which demonstrates the inconsistent temporal characteristic. This theory can in consistent logic explain why the top managements of listing corporations with good intentions would perform continue financial frauds. In countermeasures, there is a good correcting measure aiming at the wrongdoing bias resulting from the cognition bias of behavior agents in the hyperbola discounting model, this measure is commitment and can be used to design the countermeasure aiming at the cognition bias of senior executives. This paper, by means of disclosing and referring the commitment technique mechanism in the American Sarbanes' bill, can put forward the corresponding Optimization measures for the financial supervision of China's listing corporations.The innovation in this paper is as follows:1, Add the cognition bias analysis of behavior agents in listing companies to the traditional research of cost-benefit, which develop the theoretic span.2, Adopt the nonlinear multi-term discounting analysis technique in behavior finance theories and correct the default of traditional static analysis, build a dynamic trans-span alternate behavior analysis framework of financial report, which can analyze the typical inconsistent temporal contradict between the good initial intention and the real fraud in the financial alternate behavior. 3, Provide the micro basis for the accounting supervision of the authority in the capital market, which develop the regulation room.