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Application of Logistic Regression to Detect the Fraudulent Financial Statements (Zastosowanie regresji logistycznej do wykrywania falszowania sprawozdan finansowych)

Author

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  • Marek Sylwestrzak

    (Uniwersytet Warszawski, Wydzial Nauk Ekonomicznych, Katedra Bankowosci, Finansow i Rachunkowosci)

Abstract

This paper aims to detect the financial statements fraud based on the financial data of the US companies accused by the US Securities and Exchange Commission of manipulating financial statements under rule 10(b)-5 of the Securities Exchange Act in 2000–2007. Particular attention was paid to the use of logistic regression in the empirical literature for the detection of creative accounting. Based on empirical articles we selected thirteen financial ratios and two models predicting bankruptcy aimed at verifying the research hypotheses. In addition, we tested collinearity and equality of central tendencies between companies that falsify and do not falsify financial statements. The results confirm that the item of financial statements that is most in danger and should be monitored when attempting to detect the financial statements fraud are current assets.

Suggested Citation

  • Marek Sylwestrzak, 2016. "Application of Logistic Regression to Detect the Fraudulent Financial Statements (Zastosowanie regresji logistycznej do wykrywania falszowania sprawozdan finansowych)," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 14(63), pages 89-102.
    • Handle: RePEc:sgm:pzwzuw:v:14:i:63:y:2016:p:89-102
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    References listed on IDEAS

    as
    1. Shane A. Johnson & Harley E. Ryan & Yisong S. Tian, 2009. "Managerial Incentives and Corporate Fraud: The Sources of Incentives Matter," Review of Finance, European Finance Association, vol. 13(1), pages 115-145.
    2. Fich, Eliezer M. & Shivdasani, Anil, 2007. "Financial fraud, director reputation, and shareholder wealth," Journal of Financial Economics, Elsevier, vol. 86(2), pages 306-336, November.
    3. Patricia M. Dechow & Richard G. Sloan & Amy P. Sweeney, 1996. "Causes and Consequences of Earnings Manipulation: An Analysis of Firms Subject to Enforcement Actions by the SEC," Contemporary Accounting Research, John Wiley & Sons, vol. 13(1), pages 1-36, March.
    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.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    logit regression; creative accounting; falsified financial statements; American market;
    All these keywords.

    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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