Research On Data Quality Evaluation Of Companies' Annual Reports Based On Benford's Law

In the context of increasingly stringent market regulation and gradually standardizing of the internal and external governance environment of listed companies,how to quickly and effectively identify and quantify the more and more hidden earnings management behavior becomes a very important proposition.This paper creatively constructs a B-index comprehensive evaluation model based on Benford's law,which is used to evaluate the data quality of annual reports of listed companies,and then to assess the degree of earnings management.The B-index comprehensive evaluation model is a relative evaluation method,which can evaluate the relative data quality of data sets with similar sources and similar properties better and more accurately.Because different data sets are bound to vary in degree of compliance with Benford's law in general,using the B-index is equivalent to "normalizing" the evaluation criteria of the data quality,so that the data sets in the same group have a unified data quality evaluation reference point.In this paper,we use the B-index to carry out a large sample empirical study in three directions of financial indicators,years and stock market plates,and draw the following main conclusions:(1)Overall,the first significant digit(FSD),second significant digit(SSD)and third significant digit(TSD)frequency distributions of the financial statements data disclosed by China's listed companies over the years have been well matched with Benford's law,and the degree of fitting are all pretty high,with the exception of the pretty high VN*statistics of FSD in a few subjects such as management cost and net profit;(2)Over the years,the correlation between the first three significant digits of Chinese Listed Companies' annual data and Benford's law showed a significant distribution characteristic by gradually descending,so as the overall data quality variances between grades;the correlation coefficient between FSD and Benford's law and between SSD and Benford's law can reach more than 0.95 on average,but the correlation coefficient between TSD and Benford's law were generally less than 0.80,which indicated that the earnings management of Listed Companies in China had a tendency of gradually backward "hidden";(3)The data quality of Listed Companies' annual report in China was overall evaluated as follows:1)in terms of financial indices,the data quality of intangible assets and other receivables was good,while the data quality of management fees and net profit was the worst of these 10 financial indices,and the data quality of balance sheet was generally better than that of income statement;2)in terms of years,the data quality was good in 2015,2009,2010 and 2011,while the data quality in 2012 and 2013 was the worst in nearly nine years;3)in terms of China's stock market plates,Shanghai A-shares and Shenzhen motherboard A-shares had high quality data,while the data quality of the Growth Enterprise Market(GEM)and Shenzhen A-shares was poor.