An Effective Enterprise Earnings Management Detection Model for Capital Market Development
Suduan Chen
Department of Accounting Information, National Taipei University of Business, No.321, Sec. 1, Jinan Rd. Zhongzheng District, Taipei, 100, Taiwan.
Zong-De Shen *
Department of Accounting, Chinese Culture University, No.55, Hwa-Kang Rd., Yang-Ming-Shan, Taipei, 11114, Taiwan.
*Author to whom correspondence should be addressed.
Abstract
This study focuses on accrual-based earnings management. The purpose of this study is to establish an innovative and high-accuracy model for detecting earnings management using hybrid machine learning methods integrating stepwise regression, elastic net, logistic regression (Logit regression), and decision tree C5.0. Samples of this study are the electronic companies listed on the Taiwan Stock Exchange, and data are derived from the Taiwan Economic Journal (TEJ) for a period of ten years from 2008 to 2017. Results show that the earnings management detection model, as established by elastic net and C5.0, provides the best classification performance, and its average accuracy reaches 97.32%.
Keywords: Earnings management, machine learning elastic net, C5.0.