Beneish M-score: A measure of fraudulent financial transactions in global environment?

Abstract

Research background: Earnings is a source of information for capital owners, potential investors, competitors, customer and supplier of the company. Managers have the direct motivation and knowledge and use adequate techniques to adjust legally the reported earnings to meet the specific requirements of the company and achieve stable financial results. Thus, earnings management is currently the most provocative and highly topical issue in the field of finance and accounting at the global perspective. Purpose of the article: The main purpose of the paper is to detect the manipulation with earnings in a specific sector of economy, following the global principles of financial reporting, and to reveal the degree of manipulation of enterprises in the selected countries of the Visegrad grouping. Methods: The model of Beneish M-score is applied using the sectoral data and compares the level of manipulation in the period 2015-2019. The Beneish model is a mathematical-statistical model that uses financial ratios calculated with accounting data of a specific enterprise aimed to detect if an enterprise is likely that the reported earnings of the company were manipulated. Findings & Value added: The paper monitors the development of the manipulation with earnings in the given sector (enterprises tend to manage earnings upwards), and analyses the influences of macroeconomic factors on the phenomenon of earnings management. The detection of earnings management by M-score helps protect business partners of an enterprise against fraudulent behaviour, especially in the global environment.

Using the Beneish M-score Model to Detect Financial Statement Fraud in the Microfinance Industry in Ghana

“…According to Valaskova and Fedorko (2021), the Beneish model utilises several financial ratios of a given business entity to determine the probability that reported earnings had been manipulated.…”

The Funding Burden in Detecting Financial Fraud

“…In particular, integrated reporting can prevent short-term oriented corporate behavior and promote long-term value creation that is attractive to stakeholders. According to Valaskova & Fedorko (2021), detecting specific income manipulations in the economic sector must have global financial reporting principles and disclose a certain level of Manipulation in companies in selected countries in the Visegrad grouping. Detecting profits using the M-score measurement will help protect business partners in detecting fraudulent behavior, especially globally…”

“…This study is interesting to study because earnings management practices use the Beneish M-score where this model is for several views (Ayu et al, 2020;Siekelova et al, 2020;Svabova et al, 2020) in detecting Manipulation of financial statements will provide benefits for the parties who are in positions of authority which provide increased return expectations as well as prevention of damage to the company's reputation for analysts. According to Valaskova & Fedorko (2021), the use of the beneficial M-score model revealed that 71% in cases of financial reporting was the most significant. Franceschetti & Koschtial's (2013) study adopting the Beneish Mscore is considered an appropriate model system for detecting Manipulation in corporate earnings management.…”

Earnings manipulation behavior in the banking industry of Bangladesh: the strategical implication of Beneish M-score model

“…Hołda (2020) showed the efficacy of eight ratios M-score over five ratio M-score for finding the manipulating firms of Warshow stock exchange. In 2021, Valaskova and Fedorko (2021) showed that the Beneish model can predict the fraudulent behavior of companies by detecting the manipulating one. Shakouri, Taherabadi, Ghanbari, and Jamshidinavid (2021) did a regression analysis and found that DSRI, GMI, AQI, SGI, DEPI and TATA of the Beneish model significantly impacted fraudulent financial reporting.…”