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A Response to "Critique of an Article on Machine Learning in the Detection of Accounting Fraud"

Author

Listed:
  • Yang Bao
  • Bin Ke
  • Bin Li
  • Y. Julia Yu
  • Jie Zhang

Abstract

Stephen Walker (2021) raises two empirical issues about our article in the Journal of Accounting Research (Bao, Ke, Li, Yu, and Zhang 2020). The first one is about our treatment of missing values for the raw financial statement variables. The second one is about our treatment of serial fraud. Walker (2021) suggests an alternative approach to dealing with serial fraud and claims that inferences change significantly if his approach is adopted. We reexamine the impact of the two issues on our inferences and find no evidence that these two issues alter our paper’s inferences.

Suggested Citation

  • Yang Bao & Bin Ke & Bin Li & Y. Julia Yu & Jie Zhang, 2021. "A Response to "Critique of an Article on Machine Learning in the Detection of Accounting Fraud"," Econ Journal Watch, Econ Journal Watch, vol. 18(1), pages 1-71–78, March.
    • Handle: RePEc:ejw:journl:v:18:y:2021:i:1:p:71-78
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    References listed on IDEAS

    as
    1. Yang Bao & Bin Ke & Bin Li & Y. Julia Yu & Jie Zhang, 2020. "Detecting Accounting Fraud in Publicly Traded U.S. Firms Using a Machine Learning Approach," Journal of Accounting Research, Wiley Blackwell, vol. 58(1), pages 199-235, March.
    2. Allen, Eric J. & Larson, Chad R. & Sloan, Richard G., 2013. "Accrual reversals, earnings and stock returns," Journal of Accounting and Economics, Elsevier, vol. 56(1), pages 113-129.
    3. Alexander Dyck & Adair Morse & Luigi Zingales, 2010. "Who Blows the Whistle on Corporate Fraud?," Journal of Finance, American Finance Association, vol. 65(6), pages 2213-2253, December.
    4. Patricia M. Dechow & Weili Ge & Chad R. Larson & Richard G. Sloan, 2011. "Predicting Material Accounting Misstatements," Contemporary Accounting Research, John Wiley & Sons, vol. 28(1), pages 17-82, March.
    5. Stephen Walker, 2021. "Critique of an Article on Machine Learning in the Detection of Accounting Fraud," Econ Journal Watch, Econ Journal Watch, vol. 18(1), pages 1-61–70, March.
    6. Mark Cecchini & Haldun Aytug & Gary J. Koehler & Praveen Pathak, 2010. "Detecting Management Fraud in Public Companies," Management Science, INFORMS, vol. 56(7), pages 1146-1160, July.
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    Citations

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    Cited by:

    1. Md Jahidur Rahman & Hongtao Zhu, 2023. "Predicting accounting fraud using imbalanced ensemble learning classifiers – evidence from China," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(3), pages 3455-3486, September.
    2. Stephen Walker, 2022. "Erroneous Erratum to Accounting Fraud Article," Econ Journal Watch, Econ Journal Watch, vol. 19(2), pages 190–203-1, September.

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    More about this item

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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