Corporate governance: five-factor theory-based financial fraud identification

Abstract

The frequent occurrences of financial fraud in listed companies have had a serious impact on the stable development of the capital market. The Chinese company, Luckin Coffee, listed in the USA, recently confessed to fabricating transactions worth RMB2.2 billion and has received a delisting notice from NASDAQ. It can be seen that the detection and analysis of financial fraud behavior is very important not only for the internal governance of companies and for their external investors but also for regulatory agencies. This article uses a research method combining normative analysis with empirical research, utilizes a targeted selection of data from the listed companies penalized due to fictitious profits, uses the CRIME theory as the basis for normative analysis, and establishes a financial fraud identification model by means of empirical analysis. Finally, based on the research results of this article, we propose rational governance measures for countering the problems of fraud in financial statements of listed companies.