Detecting the probability of financial fraud due to earnings manipulation in companies listed in Athens Stock Exchange Market

Abstract

Purpose The aim of this paper is to detect whether there are companies listed in the general index of Athens Stock Exchange Market that possibly conduct earnings manipulation during 2017–2018.

Design/methodology/approach The paper is based upon the Beneish model (M-score), which consists of eight variables to examine the probability of financial statement fraud related to earnings manipulation for 40 companies listed in the Athens Stock Exchange Market. Any company with an M-score −2.22 or above is likely to be a manipulator whereas any company that scores −2.22 or less is unlikely to conduct earnings manipulation.

Findings After calculating the M-score for each company, it was found that 33 (out of 40) companies had M-score values lower than −2.22. Therefore, 82.5% of the sample is considered rather unlikely to conduct earnings manipulation whereas 17.5% of the companies listed in the general index of Athens Stock Exchange Market is likely to manipulate its earnings.

Research limitations/implications In this paper, all institutions related to financial services were left out of the sample because of the fact that M-score cannot provide reliable results when applied on similar companies.

Originality/value Beneish model offers a probability of financial fraud and can be therefore used as a supplementary test for auditors, fraud examiners or even national regulators such as the Hellenic Accounting and Auditing Standards Oversight Board or the Hellenic Capital Market Commission. The results of this paper can contribute to the literature concerning financial fraud in Greece during 2017–2018 because no relevant recent researches have been published yet.