AN INVESTIGATION INTO THE RELATIONSHIP BETWEEN COMPANY-SPECIFIC CHARACTERISTICS AND FINANCIAL MISREPRESENTATION USING THE BENEISH M-SCORE

Year 2024, Volume: 12 Issue: 2, 147 - 158, 16.12.2024

Ömer Faruk Büyükkurt

Abstract

This study investigates the influence of firm-specific factors on the Beneish M-Score, a key indicator used to detect financial misreporting. The sample comprises 1,256 firm-year observations from manufacturing firms listed on Borsa Istanbul (BIST) between 2013 and 2023. Using a Panel Data Fixed Effect Model, this research explores the impact of firm size, Return on Assets (ROA), firm age, leverage, and net margin on the likelihood of financial misreporting. To determine the appropriate model specification, the study conducts several diagnostic tests, including the Hausman test, the Breusch-Pagan Lagrange Multiplier (LM) test, and assumption tests specific to fixed-effects modelling. The results reveal significant negative relationships between the Beneish M-Score and firm size, firm age, and net margin. These findings suggest that larger, older, and more profitable firms are less likely to engage in financial misreporting, potentially due to stronger governance structures and higher levels of external scrutiny. In contrast, no significant relationship is found between Beneish M-Score and ROA, indicating that efficiency, as measured by ROA, does not significantly affect financial misreporting likelihood. Additionally, the analysis identifies a significant positive relationship between the Beneish M-Score and leverage, indicating that firms with higher levels of debt are more likely to engage in financial misreporting.

Keywords

Financial Accounting, Financial Misrepresentation, Beneish Score

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