Research on the Applicability of MScore and FScore Models to U.S.-Listed Chinese Stocks

Xiaotian Ye (), Zeyu Cheng (), Xinyu Geng () and Chengyu Zhu ()
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Xiaotian Ye: Jiangxi University of Finance and Economics, Accounting Faculty
Zeyu Cheng: Wenzhou Kean University, College of Business and Public Management
Xinyu Geng: Nanjing Audit University, Auditing (ACCA)
Chengyu Zhu: Zhongnan University of Economics and Law, Accounting Faculty

A chapter in Proceedings of the 2022 2nd International Conference on Economic Development and Business Culture (ICEDBC 2022), 2022, pp 329-341 from Springer

Abstract: Abstract In recent years, the U.S. Securities and Exchange Commission (SEC) has also launched an increasing number of investigations into accounting fraud by U.S.-listed Chinese companies. According to the statistics, from year 2000 to year 2020, a total of 464 Chinese concept stock companies entered the American capital market, raising a total of 74.1 billion dollars through its IPO. Luckin Coffee is undoubtedly one of the most talked about Chinese stocks recently. Earlier, the well-known short-selling agency Muddy Waters released a short-selling report on Luckin Coffee, accusing its financial report of fraud. Such a common phenomenon of Chinese concept stocks fraud makes our group want to explore whether MScore and FScore can be used to predict whether there is financial fraud. Our group used the same year's MScore and FScore to compare the non-counterfeiting companies in the same industry and the accused cost company and found that both MScore and FScore Model’s performances on predicting financial fraud is not that well no matter from industry aspect or time aspect. There are two main reasons for this phenomenon 1) due to the differences in Chinese and American accounting standards, the financial statements of Chinese enterprises are not completely disclosed in accordance with the American accounting standards; 2) the enterprise is headquartered in China, which causes the enterprise to operate according to the Chinese rules and regulations, and the operation mode, profit mode, tax mode and other modes.

Keywords: Financial fraud; Chinese concept stocks; MScore Model; FScore Model (search for similar items in EconPapers)
Date: 2022
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DOI: 10.2991/978-94-6463-036-7_50

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