Browsing by Author "Wirth, CG"

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    Cash tunnelling in Chinese firms
    (Financial Management Association, 19/10/2016) Wei, Y; Chen, JG; Wirth, CG
    This study investigates how controlling shareholders fraudulently extracted firm value via cash tunnelling from Chinese companies from 1998 to 2011. The evidence suggests that expropriating owners choose a balance sheet account that is not directly related to the firm’s operating business in order to record a fictitious asset, with the account remaining in the company’s books for a reasonably long time. The delay in recognising the fictitious asset as a loss in the financial statements makes it more difficult for auditors to detect the fraud. We develop two measures to estimate the total loss caused by the cash tunnelling, and estimate the loss to be two to four times net income. Evidence on the factors and process surrounding cash tunnelling is presented, and we demonstrate that the propensity to engage in tunnelling is positively related to the differential rights between controlling shareholders and minority shareholders and negatively related to firm profitability, the probability of fraud detection and the severity of the punishment.
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    Detecting Fraud in Chinese Listed Company Balance Sheets
    (SSRN eLibrary, 2016-04-01) Wei, Y; Chen, JG; Wirth, CG
    This study investigates the links between accounting values in Chinese listed companies’ balance sheets and the exposure of their fraudulent activities. Every balance sheet account is proposed to be a potential vehicle to manipulate financial statements. Other receivables, inventories, prepaid expenses, employee benefits payables and long-term payables are important indicators of fraudulent financial statements. These results confirm that asset account manipulation is frequently carried out and cast doubt on earlier conclusions by researchers that inflation of liabilities is the most common source of financial statement manipulation. Prior practices of solely scaling balance sheet values by assets are revealed to produce spurious relationships, while scaling by both assets and sales effectively detects fraudulent financial statements and provides a useful fraud prediction tool for Chinese auditors, regulators and investors.