Unearthing Financial Statement Fraud: Insights from News Coverage Analysis

Part of FinEML online seminar series
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Jianqing Fan
Friday 3 May 2024, 16:00 - 17:00
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We propose a financial statement (FS) fraud detection framework, called PeerMeta,  that makes improvements in all three components of the detection procedure: label measurement, feature set, and detection model. For the label measurement, prior studies mainly adopt FS fraud events that have already been disclosed and confirmed. 

Jianqing Fan, Qingfu Liu, Kaixin Zheng

The results

We construct a new measure based on news coverage that can reflect unrevealed FS fraud behaviors as well. For the feature set, we innovatively add peer factors learned through the business description texts in financial reports. For the detection model, two meta-learning algorithms are applied to aggregate the 18 popular classifiers. The results indicate that the proposed method has amazingly high recall, reaching a staggering value of 0.98. We document that all components in PeerMeta contribute to the improvements of FS fraud detections and also showcase the significant economic value of the detection framework and find that recall is more crucial for the economic value than precision.

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See also

The Anatomy of Machine Learning-Based Portfolio Performance

Christian Montes Schutte, Aarhus University
Christian Montes Schutte smiling at the camera

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