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Detection Model of Legally Registered M afia Firms in I taly
Author(s) -
Ravenda Diego,
ArgilésBosch Josep M.,
ValenciaSilva Maika M.
Publication year - 2015
Publication title -
european management review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.784
H-Index - 32
eISSN - 1740-4762
pISSN - 1740-4754
DOI - 10.1111/emre.12039
Subject(s) - accrual , earnings management , accounting , financial statement , incentive , business , statement (logic) , earnings , sample (material) , economics , law , microeconomics , audit , political science , chemistry , chromatography
This paper develops a model that can contribute to the detection of legally registered firms defined as M afia firms ( LMF s) due to having been confiscated by judicial authorities, in relation to alleged connections of their owners with Italian organized crime. The model correctly classifies 76.41% of firms within a matched sample of 852 firm‐years including LMF s and lawful firms. Furthermore, we present an analysis of financial statement characteristics of singular private firms which are socially irresponsible by nature and whose incentives, modus operandi and legal financial statement formats differ from those of listed companies. In particular, we show that specific accruals and earnings management proxies may provide more insight into accounting manipulation patterns of LMF s. More importantly, our paper can help practitioners and regulators identify accounting signals that can be used in risk assessment models or in the detection of criminal infiltrations and related illicit practices.