An Empirical Study Of Listed Companies Financial Fraud

The stock market is an important part of the capital factor markets and an important wayand form of economic resource allocation.However,there are a lot of financial fraud which notonly brought serious damage to the investors,but also affected public confidence in theregulators,listed companies and intermediaries.The company which cheated the public gathered alot of money from stock market,which caused a mismatch of capital.Financial fraud has causedan extremely negative impact to the healthy development of China’s capital market and seriouslyaffected the efficiency of resource allocation.In this paper,we select51companies which was punished by regulatory agencies from2010to2013and51companies in the same industry as the control sample which have similar size tothe fraud and have not been punished by regulatory agencies.We studied these companies usingdescriptive statistical analysis,Wilcoxon signed rank,factor analysis,Logistic regression modelsand other methods.The empirical results show that:1,Listed companies which have poor profitability have more probability to cheat.Thisoutcome is related with the regulation standards.The company which wants to be listed orrefinance must meet the appropriate standard of profitability.Some companies which don`t meetthese standards would cheat.In addition,a listed company whose audited net profit for twoconsecutive years are negative will be special treat,the English abbreviation is ST.A listedcompany whose audited net profit for three consecutive years are negative would be suspendedfrom being listed and would be delisted treatment if this company can`t earn in six months afterbeing suspended.Those companies which are facing being delisted may cheat.2,Listed companies which have weak operational capacity are more prone to cheat.Thesecompanies have low utilization efficiency of working capital,and lack the ability to raise workingcapital.In order to maintain the development of enterprises,these companies are easier to cheat.3,Listed companies which have the higher number of meetings of the Board and is givennon-standard audit opinions by certified public accountants have more probability to cheat.Thisshows that the board was forced to play a "fireman" role when the company have problemsthrough convening board meetings to discuss measures and coordinate the interests of allparties.CPA as an independent third party implement oversight functions through issuing auditopinion and CPA with professional judgment would find a listed company’s financialmishandling and note the mishandling in the audit report.A listed company which has a highnumber of board meetings and is issued a non-standard opinion by certified public accountant is likely to cheat.According to empirical results, we propose recommendations to improve corporategovernance structure;changing regulatory model;changing CPA compensation paid model toimprove the proportion of third-party payment to reduce CPA reliance on listed companies.