The Research Of The Detection Of Earning Manipulation Of Chinese Listed Companies–measured By M-score

Responding to the severe financial credit crisis that Chinese companiesare facing, the article suggests a model for detecting manipulation andassessing the reliability of reported earnings of those Chinese companieslisted on NASDAQ in the United States for the2007-11period.The article first presents a profile of the effects of manipulation andpreconditions that might prompt companies to engage in such activity. Asecond analysis reviews some of most cited and used tool for determining thelikelihood of earnings management and explains why M-score is applied todetect fraud of the sample companies. This can be explained by the ease ofuse and its holistic nature. The model identifies approximately one third ofthe sample companies involved in earnings manipulations for the2007-11period.After a close examination of companies subject to earning manipulations,the article also reveals a strong positive correlation between the probability ofmanipulation and some financial characteristics. Finally, the article proposesrecommendations on preventing financial fraud and rebuilding thecreditability of Chinese listed companies.