An Effective Financial Statements Fraud Detection Model for the Sustainable Development of Financial Markets: Evidence from Taiwan

Chyan-long Jan
Additional contact information
Chyan-long Jan: Department of Accounting, Soochow University, No. 56, Section 1, Kueiyang Street, Chungcheng District, Taipei 10048, Taiwan

Sustainability, 2018, vol. 10, issue 2, 1-14

Abstract: This study aims to establish a rigorous and effective model to detect enterprises’ financial statements fraud for the sustainable development of enterprises and financial markets. The research period is 2004–2014 and the sample is companies listed on either the Taiwan Stock Exchange or the Taipei Exchange, with a total of 160 companies (including 40 companies reporting financial statements fraud). This study adopts multiple data mining techniques. In the first stage, an artificial neural network (ANN) and a support vector machine (SVM) are deployed to screen out important variables. In the second stage, four types of decision trees (classification and regression tree (CART), chi-square automatic interaction detector (CHAID), C5.0, and quick unbiased efficient statistical tree (QUEST)) are constructed for classification. Both financial and non-financial variables are selected, in order to build a highly accurate model to detect fraudulent financial reporting. The empirical findings show that the variables screened with ANN and processed by CART (the ANN + CART model) yields the best classification results, with an accuracy of 90.83% in the detection of financial statements fraud.

Keywords: financial statements fraud; data mining; artificial neural network (ANN); support vector machine (SVM); decision tree; classification and regression tree (CART); chi-square automatic interaction detector (CHAID); C5.0; quick unbiased efficient statistical tree (QUEST) (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
https://www.mdpi.com/2071-1050/10/2/513/pdf (application/pdf)
https://www.mdpi.com/2071-1050/10/2/513/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:10:y:2018:i:2:p:513-:d:131948

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().