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Theoretical model of accounting fraud and supervision of listed companies in China

Author: XiaoHuaFang¡¡ZhengGuangCai From: www.yourpaper.net Posted: 2009-06-12 04:52:22 Read:
[Abstract] In this paper, the analysis methods of game theory, complete information static game analysis of the Public Company Accounting fraud and government regulation, theoretically reveals the motivations and the game balanced results of the listed companies and regulatory authorities, and the use of listed the company's accounting fraud experience data the equilibrium outcome deduction. Results show that the to improve verification success rate, increase the punishment on listed companies to reduce the cost of government regulation, increased government regulation of reward, the higher the probability of the Public Company Accounting fraud over a third, still need to intensify supervision; can reduce the probability of the Public Company Accounting information fraud.
[Keywords] accounting information fraud; regulation; Game; deduction


After 18 years of ups and downs, the listed companies in China in terms of the number, size, strength, operation and management, have made considerable progress and development. However, this process also exposed a lot of problems, most notably that the listed companies through false accounting information, to whitewash the results of operations, and to deceive investors, creditors, government, and small and medium-sized shareholders to obtain illegal benefits. Lam shares Guangxia, Kelon Electrical accounting fraud, a spate of seriously disrupting the order of the securities market, which triggered a crisis of confidence of the capital market, stock market volatility, the listed company funding difficulties and a series of social problems. Rules of market economy and Practice has proved that the healthy operation of the economy can not do without government supervision and guidance, the stock market is no different. Listed companies due to the complexity of the market, as well as the system, institutions and regulations are not sound execution space and possible fraud in accounting information. However, listed companies in fraud or government regulation and punishment of factors will be taken into account. When the Government to strengthen the supervision of listed companies the possibility of fraud is reduced, on the contrary, the possibility of fraud listed companies will increase; when the probability of the fraud of listed companies is very low, because the sake of regulatory costs, government deregulation, the same When fraud is rampant, the government interests are jeopardized, it will intensify supervision. Therefore, the interaction between listed companies and the government, the party decision-making, the other party will respond to consider the reaction of the other party before action and results. Because of this, both game analysis to find a balanced solution, and it is necessary to use the data of listed companies in China fraud inference and practical significance.

Second, the literature review

Some scholars studied from the perspective of game violations of the listed companies. To attain that China's accounting practices had fallen into the "prisoner's dilemma". Tang Shou-heng, the Jianguo and how Ray peak analysis pointed out that accounting fraud and counterfeiting almost do not need to pay the material cost, the main costs are subject to sanctions and punishment: law, revoked the business license, production license, suspension of business for rectification, the dissolution of behavior responsibility by various legal responsibility prosecuted; suffered losses to property or other economic benefits to the economic damage to compensate reputation. Therefore, it is recommended that a fraud legal costs set to increase, and second, to strengthen law enforcement and improve the rate of fraud has been prosecuted. Qinjiang Ping and Duan Xing people think, should strengthen punishment intensity of the accounting fraud by increase of accounting fraud by the punishment stringent and check the efforts to improve the accounting regulatory environment and reduce the accounting information of regulatory costs explicitly regulators duties, increase the regulatory dereliction of duty punishment. Qin Jiangping recommended to determine the appropriate regulations in the form of incentive coefficient, and fully mobilize the enthusiasm of the regulators, prompting regulators actively implement strict supervision, and supervision of government officials honest and dedicated, the regulations specify the appropriate form of punishment coefficient forcing it to crack down on accounting fraud, and suppression of acts of accounting fraud. Domestic scholars using game theory analysis of listed companies and government regulatory actions, however, is limited to the analysis of the model itself, almost no one to take advantage of the data model deduction.

Game of the Public Company Accounting fraud and regulatory analysis

(A) The model assumes
This model assumes that the participant only two, one is the regulatory body, government regulators, First, regulatory object of the listed companies. Listed companies, producers and providers of accounting information, the the government regulators information needs, away from the day-to-day operation and management of listed companies, listed companies to rely on to provide him with information. Therefore, information asymmetry exists between the two listed companies to ascertain the true accounting information, and government regulators are not known or are not fully known, but the real accounting information. Due to the accounting policies of optional, listed companies can be based on the needs of their own interests, selective disclosure or even the disclosure of false accounting information disclosed in accordance with the prescribed content and duration of to deceive external information needs, such as small and medium-sized shareholders it made in favor of their own decision-making, in order to get the revenue that exceeds the normal operating conditions, the possible generation of accounting information fraud.
Action programs
Two, namely regulatory or non-regulatory action programs assume that government regulators. The program of action of the listed companies have two types of fraud and not fraud. Assuming both are rational economic man, follow the principle of maximizing their own interests; government regulators and listed companies at the same time to select the action, though not at the same time but after the actors did not know before the actors take what specific actions that static game; Government regulators and listed companies can not "collude" to seek the interests of both sides to maximize.
Information structure
Assume that the participants in the information is complete, the strategy of each party involved, the actions of other participants have an accurate understanding of or can not determine the other programs of action, but it can accurately determine the probability of other action.
(B) model
Game are both economic man, the factors that affect the decision-making by government regulators regulatory costs and a fine of income (including the confiscation of illegal proceeds); factors affecting the decision-making of listed companies is fraud proceeds and fraud fine. Government revenue is determined by the economic environment, the normal earnings of listed companies has nothing to do with whether or not the government regulators, is fixed, for ease of discussion, are assumed to be zero. Listed company fraud, failure of government regulation, it is assumed that the loss of government regulators (such as by the criticism and the punishment of the higher authorities of the investors) fraud proceeds for the listed companies.
Regulatory costs is the assumption that government regulators C listed company fraud proceeds Y, fraud fines is F, the supervision of government regulators get paid S; Government of the Public Company Accounting fraud investigation the probability of success is ¦Ä; probability of government regulation p, the probability of the Public Company Accounting fraud is q. Table 1 game model.

(C) model analysis
1 the government regulators probability (p) under certain circumstances, the listed company to choose accounting information fraud (q = 1) and without rigging (q = 0) the expected revenue were:
V g (p, 1) = p [-¦ÄF (1-¦Ä) Y] Y (1-p)
Vg (p, 0) = 0
When the Public Company Accounting fraud and fraud expected revenue no difference to reach the optimal probability of government regulation. Vg (F Y), (p, 1) = VG (p, 0) obtained: P * = Y / [¦Ä]

Certain circumstances of the Public Company Accounting information fraud probability (q), the government chose to govern (p = 1) and non-regulatory (p = 0), the expected revenue were:
Vsub> g (1, q) = q [¦Ä (F S)-C-(1-¦Ä) Y]-C (1-q)
Vsub> g (0, q) =-Yq
When no difference of the expected revenue of the government regulatory and non-regulatory, to achieve the optimal probability of a listed company without rigging. ORDER Vg (1, q) = Vg (0, q), Solutions obtained: q * = C / [¦Ä (F Y S)]
Nash equilibrium obtain the game model: {Y / [¦Ä (F Y), C / [¦Ä (F Y
S)]}. Government supervision, the probability of p listed companies to select accounting fraud probability q.
Government regulation probability p> p * when the optimal choice of the listed company is not fraud; probability of the Public Company Accounting fraud when government regulators probability p when q> q *, the optimal choice for government regulators regulatory ; When the probability of the Public Company Accounting fraud q
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