The Recognition Of The Listed Companies’ Financial Fraud

Since the emergence of accounting books, scholars from various countries are troubled by an important issues—the financial fraud. In order to avoid the corrupt practices of the management, the shareholders of the company establish an equity incentive mechanism, trying to combine the interests of the manager with the interests of the shareholders and the company. They try to establish a good internal control system in order to avoid staff fraud at the institutional level. However, these solutions are only temporary, and palliatives, The quantity of fraud doesn’t be found goes far beyond the quantity of the fraud which was discovered. Therefore, how to identify and detect financial fraud quickly is the topic we will discuss in next parts.Domestic and foreign scholars have been trying to find the fraud theories which are more consistent with fact. Through continuous exploration, foreign theories are already quite mature and have been examined empirically repeatedly. Therefore, we selected the triangle theory as the theoretical basis of fraud identification. The theory thought that pressure, opportunity, and self-rationalization are three indispensable factors caused by fraud. The fraud behavior generate because of poor performance, some pressure brought by financing needs to the fraud, opportunities such as imperfect corporate governance, ownership structure and incentives, self-rationalization means that fraud can find a reason to convince themselves. Of course, the other fraud theories are also practical and classic, but mostly related with the specific behavior of people’s psychology, emotions, values, attitudes and satisfaction degrees, which are hard to define quantitative determination.Therefore, if we want to take these theories or the triangular theory of self-rationalization factors into the model, it is too difficulty that we need to combine the survey and other empirical methods and investigate the managers of fraud and non-fraud companies. Then, the model includes as many indicators as possible according to the theory, in order to obtain a high quality model.This article mainly uses a combination of empirical and normative analysis method, and is divided into six parts, the basic content is as follows: At the first part, we discuss the significance of researching financial fraud, the main research methodology, framework, innovation and limitations. At the second part,we review the classic theoretical and empirical researches, especially the fraud triangle theory and empirical articles of the logistic regression model.The third part is a basic analysis of the financial fraud, the main content is to discuss the influencing factors of fraud based on how to choose the model indicators from three aspects (pressure, opportunity and enterprise environments). The fourth part is the experience of financial fraud identification, a brief introduction of several primary means of financial fraud. At last we summarized several more specific identification methods of financial fraud.The fifth part is the focus of this article, the fraud identification by empirical method--Logistic regression model, In terms of establishing indicators, mainly based on the fraud triangle theory to define the three major factors, but the self-rationalization contains too many emotions, values, attitudes, and other factors, it is difficult to definite them into quantitative determinations. Therefore, considering the Chinese companies exist in special conditions, we add corporate environment as a new indicators. These indicators could have a certain degree of impact on corrupt behavior, but they are all dummy variables and we find samples by making pairs. Therefore, the contribution of these indicators is limited. We selected a total of209effective samples of financial fraud companies penalties by regulatory agencies (the Securities and Futures Commission, the Shanghai Stock Exchange, the Shenzhen Stock Exchange, the Ministry of Finance, etc.) and find the corresponding paired samples, totally compose418samples into the model. At the model building phase, three fraud factors all have significant influence factor at least, that means their influence on fraud is collaborative and complicated. At last, the accuracy of the final model is76.0%, explaining the model have abilities to identify the financial fraud behaviors.The sixth part is conclusions and recommendations, the article briefly summarized and combined Suggestions corresponding problems in the course of the study and obtain these conclusions:Firstly, listed company should improve their internal incentives. The second is to optimize the equity structure and to encourage institutional investors holding the equity. The third is to increase the supervision and punishment.The research method is based on empirical research and normative analysis, either use inductive analysis, comparative analysis, and charts and so on. The second part of article that the literature review and the third part the basic analysis of financial fraud have used the normative analysis, summarize previous scholars’ important theoretical researches and empirical researches, specific analyze the motivation of financial fraud base on the fraud triangle fraud theory, supplementing by the cases, data, charts, and so on. The third part of the article which is the recognition analysis of financial fraud, we use the inductive method, summarizing the primary means of financial fraud and the identification of financial reporting fraud, and properly use the example method, and exemplify fraud case experience correspondingly, so that the experience of identifying fraud have the significance of practical applications. It is also innovative in identifying lessons that we use Benford’s law fraud identification. The fifth part of the financial reporting fraud identification stage, mainly use empirical research methods. We use the logistic regression method to establish the specific recognition model and test article predictability.