Empirical Study On Operating Revenue Manipulation Of Listed Companies

From 1995 to 2005, 83 listed companies have been punished by CSRC, which shows that the financial reporting quality should be improved. Revenue manipulation is the most common instrument among the financial frauds. According to《Fraudulent financial statements: 1987-1997》issued by COSO which summarize the techniques of financial statement fraud and defines the meaning of financial statement fraud, it is said that typical financial statement frauds relate to overestimate of assets and profits. Over half of the companies are involved in recognizing revenue in advance or revenue recognition frauds; half of the companies would underestimate account receivable reserves or overestimate other assets. So it is important to study effects of revenue manipulation on financial data of listed companies.ShizhongHuang brought forwarding 2004 that the listed companies might be involved in revenue manipulation when the increase of account receivable is higher than the increase of sales and substantive bad debt reserves are collected.Reports from Albrecht, Romney (1986) and Treadway Committee (1987) show that financial statement frauds often link with companies in financial dilemma. Results of the research from LuqiaoZhao,LiangChen,XuanWang ( 2003 ) ,ShuLin,MinghaiWei (2000)pointed out that financial frauds are related with the objectives of individual companies. Some meant to avoid punishment because of continuous loss in three years. Some manipulated profit in order to be qualified for Rights Offering. Research from Messod D. Beneish,Dechow,Summers and Sweeny shows that there are significant symbols in the financial indexes when financial frauds exist. There are economic reasons for financial frauds. Risky factor theory, economic factor theory, asymmetry information theory and opportunism theory are considered to be the internal factors of financial frauds. The external factors in reality include qualification for IPO, rights offering, escape from punishment and stock price manipulation. Both external and internal factors contribute to financial frauds. So is revenue manipulation. As for the internal ones, revenue is an important part of financial performance and to recognize revenue in advance or in delay would change the company's profitability and performance. As for the external ones, revenue recognition frauds are nor so easy to be audited and identified for the complexity of itself.During the empirical study, 28 samples involved in revenue manipulation are chosen from fraudulent companies which are already disclosed. The total number fo the samples is 36 for there are companies which are invoveld in financial frauds for several continous years. 36 controlling samples are chose from non-fraudulent companies which are in the same industry and have similar size. According to descriptive statistical tests on 20 financial indexes related with revenue , in the year before the fraud, there lies siginificant difference of leverage ratio, the ratio of operation capital and total assets . Financial situation deterioration in the year before the fraud urges the choice of fraudlent behavior. in the year of fraud, there is significant difference in 10 indexes related with revenue , so these indexes could reflect the real operating situation. Because of the influence of the fraud, financial indexes are still abnormal in the year after it.The Correlation Analysis shows that correlation between financial indexes which can show the signs of financial frauds is different from that of the controlling samples. It shows that these indexes could help us to identify the operation of the companies.Difference lies between fraudulent companies and non-fraudulent companies .Concerns on these indexes would help the investors to discover the abnormal situation in corporate operation.The management should require the listed companies to disclose cash flow for it is more difficult for them to manipulate cash flow. Besides, transverse and longitudinal analysis against account receivable, operating revenue, other receivables, current assets and leverage should be emphasized the significant difference between fraudulent companies and non-fraudulent ones only serves as alarming signals. Other information should be collected to judge the real operating situation of the companies.Both economic reasons and specific market factors contributes to the financial frauds. And the different objectives of the contract parties serve as the internal environment of financial frauds. Financial indexes are alarming signals which means these companies should be paid attention to. Revenue manipulation is the most common instrument among the financial frauds so we should pay attention to the abnormality of revenue-related indexes. More attention should be paid to cash flow for recognizing revenue in advance, revenue recognition frauds or related party transactions can't bring the changes. The management should enact maturity regulates of disclosing cash flow index ,they should pay attention to the profit of listed companies and cash flow,rationality of related party transactions, reduce the overrun of financial frauds. Following the perfect of policy and system, the methods of financial frauds in listed companies will more and more concealment, so, analyzing deeply the method of financial frauds,holding the change of financial index in time,reviewing roundly the business conditions are very important meaning for the management.