The Research of Financial Fraud and Regulatory Countermeasures to the Listed Companies Based on Game Theory

Abstract

Accounting Fraud, as immoral behavior which violates the law, may cause severe damage to economic and market trust. The listed companies may acquire short term benefits through accounting fraud; therefore, the government regulatory authority should set up severer policy to prevent and avoid this behavior from happening. This review article aims to analyze the existing problem of accounting fraud, games between listed companies and regulatory authorities based on game theory, and the mechanism that caused accounting fraud to happen. The articles have found that the behavior of accounting fraud may confuse the investors by its invalid financial report, which often results in wrong investment decisions. If the accounting fraud has been revealed and known by the public, the listed companys share price will plummet, overall market confidence will suffer, and the entire economic system and financial stability will also be affected. By damaging the financial stability and decreasing the overall investments, accounting fraud handicaps economic growth by its possible consequence of decreasing the economic activity, capital expenditures, and the employment opportunities. However, the game theory research on the games between listed companies and regulatory authorities may offer supervisory measures to reduce and prevent the occurrence of financial fraud.