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Testing the Beneish Model Relevance in Case of Entities with Confirmed Reputational Risk

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  • Ioan Ovidiu Spătăcean

    (Faculty of Economics and Law, ED1 Department – Economic Sciences, University of Medicine, Pharmacy, Sciences and Technology “George Emil Palade” from Targu Mures, Gh. Marinescu Street, no. 38, Targu Mures, 540139, Romania)

Abstract

The Beneish model is a useful tool for assessing the potentially fraudulent behaviour of an entity that could resort to misstated financial reporting by manipulating earnings. Tarjo ---amp--- Herawati (2015) concluded that “the M-score of the Beneish model was generally able to detect financial fraud”, following a study on 35 listed companies that were confronted with allegations of fraud in the period 2001-2014, by accessing the sanctions database applied to companies of public interest (issuers) published by the Financial Supervisory Authority. Also, Ahmet Ozcan (2018) stated that the Beneish model “brings effective value in the analysis of the quantitative characteristics of falsified financial statements”, a conclusion based on a concentrated research on a sample of 174 firms over the period 2005-2017. However, the construction of this model was not oriented for the financial services industry, therefore the studies referred to above do not include any investment firms. Our research aims to assess the relevance of the use of the Beneish model to entities involved in scandals on fraudulent or suspected distorted financial reporting operations (Romcab, 2017 and Harinvest, 2013) in order to Test the Beneish model’s validation capability. On the basis of the conclusions obtained, it can be accepted that the applicability of the model is validated for the entities examined.

Suggested Citation

  • Ioan Ovidiu Spătăcean, 2019. "Testing the Beneish Model Relevance in Case of Entities with Confirmed Reputational Risk," Acta Marisiensis. Series Oeconomica, "George Emil Palade" University of Medicine, Pharmacy, Sciences and Technology of Târgu-Mureș, România - Faculty of Economics and Law, vol. 1, pages 43-48, December.
    • Handle: RePEc:pmu:oecono:v:1:y:2019:p:43-48
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    JEL classification:

    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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