The model of financial statement fraud behaviors in listed companies in China: a system perspective

Because of the multiplicity of property rights, the financial statement fraud behaviors in listed companies are more complex than in common companies. The author put forwards two important notions of (1) different participants in capital market (e.g. managers, shareholders) have different incentives to engage in financial statement fraud and perform different characteristics, and (2) accounting behaviors are affected by many complex factors. So this paper distinguishes two different motivations of financial statement fraud perpetrated by different participants, and presents a model, which integrated agreement theory (AT), information asymmetry theory (IAT) and stakeholder theory (ST) based on system perspective, for analyzing financial statement fraud behaviors respectively. As developed in the model, we can see that financial statement fraud behaviors in listed companies are continuous processes with three layers, and there are strong differences between these layers determined by different mechanisms. So this paper points a monitoring mechanism of preventing and detecting financial statement fraud from three layers which include adjustment, supervision and restriction. The result of this study provides an available approach for analyzing financial statement fraud behaviors during firm strategy, firm operation and macroenvironment supervision.