Testing Benford’s Laws (non)conformity within disclosed companies’ financial statements among hospitality industry in Romania

Abstract

Nowadays, the Benford’s Laws is tested in plenty of academic domains as the first check of data reliability. Benford’s Laws non-conformity does not necessarily mean that there is a case of data manipulation. However, such a test can raise the first signal for further prudence in conclusions based on that specific dataset. Romania is considering to have a higher rate for fiscal evasion, and the cash propensity within the hospitality industry is high. In this context, we expect that hospitality industry companies’ fiscal statements to be Benford non-conformant. The dataset consists of more than 574 thousand Romanian companies’ disclosed financial statements for the year 2013. The control variable is the company’s size (from the number of employees point of view). Against our expectations, we find very small discrepancies in the dataset’s empirical distributions compared to Benford’s Laws. This is the case for the first digit, second digit and the first two combined digits.