2017 | Volume 13 | Issue 2 | 210-223
Article title

Applying Benford's law into Jordanian insurance companies to identify earning's manipulations

Title variants
Languages of publication
This study applies Benford’s law to examine the manipulations in revenue and earnings of a 25 insurance companies listed in Amman stock exchange from 2010 to 2015. These companies have been divided into two groups: (i) companies achieved position net income group and (ii) companies achieved negative net income. Using Benford digital frequencies in testing the first digit revenue and net income according to Benford law indicate that there are manipulations in revenue of the insurance companies that achieved position net income in the first digit, while there are no manipulations have been provided to be in the first digit of net income. Regarding insurance companies that achieved negative net income according to Benford law indicates that there are manipulations in revenue and net income. Testing the second digit of listed insurance companies In Stock Exchange for revenue and net income according to Benford law indicates that there are no manipulations in revenue and net income of the insurance companies that achieved position and negative net income in the second digit.
Physical description
  • Department of Risk Management and Insurance, The University of Jordan
  • Al-Rawashdeh, F., Al Singlawi, O. (2016). The existence of fraud indicators in insurance industry: Case of Jordan. International Journal of Economics and Financial Issues, 6(S5), 168-176.
  • Barth, M., Elliot, J., & Finn, M. (1999). Market rewards associated with patterns of increasing earnings. Journal of Accounting Research, 37(2), 387-413.
  • Benford, F. (1938). The law of anomalous numbers. In Proceedings of the American Philosophical Society, 78(4), 551-572.
  • Burgstahler, D. & Dichev, I. (1997). Earnings management to avoid earnings decreases and losses. Journal of Accounting and Economics, 24(1), 99-126.
  • Caneghem Van, T. (2002). Earnings management induced by cognitive reference points. British Accounting Review, 34(2), 167-178.
  • Caneghem Van, T. (2004). The impact of audit quality on earnings rounding behavior: Some U.K. Evidence. European Accounting Review, 13(4), 771-786.
  • Carslaw, C. (1988). Anomalies in income numbers: Evidence of goal oriented behavior. The Accounting Review, 63(2), 321-327.
  • Das, S. & H. Zhang (2003). Rounding-up in reported EPS, behavioral thresholds, and earnings management. Journal of Accounting & Economics, 35(1), 31-50.
  • Davis, A., 2002. The value relevance of revenue for internet firms: Does reporting grossed-up or barter revenue make a difference? Journal of Accounting Research, 40(2), 445-477.
  • Durtschi, C., Hillison, W., & Pacini, C. (2004). The effective use of Benford's Law to assist in detecting fraud in accounting data. Journal of Forensic Accounting, 5(1), 17-34.
  • Drechsler, C., & Geyer, D. (2014). Detecting cosmetic debt management using Benford's law. The Journal of Applied Business Research, 30(5), 1485-1492.
  • Guan, L., He, S. D., & McEldowney, J. (2008). Window dressing in reported earnings. Commercial Lending Review, 23(3), 28-33.
  • Guidry, F., Leone, A.J. & Rock, S. (1999). Earnings-based plans and earnings management by business-unit managers. Journal of Accounting and Economics, 26(1-3), 113-142.
  • Hann, R., & Lu, Y.Y. (2009). Earnings management at the segment level (Marshal School of Business Working Paper, MKT-04-09).
  • Healy, P.M. (1985). The effect of bonus schemes on the selection of accounting principles. Journal of Accounting and Economics, 7(1-3), 85-107.
  • Healy, P. M., & Wahlen, J. M. (1999) A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 65-383.
  • Hill, T.P. (1995). A statistical deviation of the significant digit law. Statistical Scientist. 10(4), 354-363.
  • Johnson, G. G. (2005). Financial sleuthing using Benford's law to analyze quarterly data with various industry profiles. Journal of Forensic Accounting, 6(2), 293-316.
  • Johnson, G. G., & Weggenmann, J. (2013). Exploratory research applying Benford's law to selected balances in the financial statements of state governments. Academy of Accounting & Financial Studies Journal, 17(3), 31-44.
  • Jordan, C.E., & Clark, S.J. (2003). Evidence on the level of corporate America's participation in the earnings game. The National Accounting Journal, 5(1), 61-70.
  • Jorgensen, B., Lee, Y. & Rock, S. (2014). The shapes of scaled earnings histograms are not due to scaling and sample selection: Evidence from distributions of reported earnings per share. Contemporary Accounting Research, 31(2), 498-521.
  • Kinnunen, J., & Koskela, M. (2003). Who is miss world in cosmetic earnings management? A cross-national comparison of small upward rounding of net income numbers among eighteen countries. Journal of International Accounting Research, 2(1), 39-68.
  • Knuth, D. E. (1969). The art of computer programming: Semi numerical algorithms, Vol. 2. Addison-Wesley Publishing
  • Lin Fengyi and Wu Sheng-Fu (2015). Applying digital analysis to investigate the relationship between corporate governance and earnings management: An empirical analysis of publicly listed companies in Taiwan. Contemporary Management Research, 11(3), 209-222.
  • Matsumoto, D.A. (2002). Management's incentives to avoid negative earnings surprises. The Accounting Review, 77(3), 483-514.
  • Miller, G.A, & Yoon, S.S. (2002). Cash from operations and earnings management in Korea. International Journal of Accounting, 37(4), 395-412.
  • Miller, P., Martin, G., & Bahnson, P. (2012). A penny for your thoughts: Sizing up manipulative EPS rounding. Strategic Finance, 94(1), 35-39.
  • Nigrini, M. J. (1996). A taxpayer compliance application of Benford's law. The Journal of the American Taxation Association, 18(1), 72.
  • Nigrini, M. J. (1999). I've got your number. Journal of Accountancy, 187(5), 79-83.
  • Nigrini, M. J. (2005). An assessment of the change in the incidence of earnings management around the Enron, Andersen episode. Review of Accounting and Finance, 4(1), 92-110.
  • Özarı, Ç., Ocak, M. (2013). Detection of earnings management by applying Benford's law in selected accounts: Evidence from quarterly financial statements of Turkish public companies. European Journal of Economics Finance and Administrative Sciences, 59(4), 37-52.
  • Özer, G., & Babacan, B. (2013). Benford's law and digital analysis: Application on Turkish banking sector. Business and Economics Research Journal, 4(1), 29-41.
  • Payne, J.L., & Robb, S.W.G. (2000). Earnings management: The effect of ex ante earnings expectations. Journal of Accounting, Auditing and Finance, 15(4), 371-392.
  • Peek, E. (2004). The use of discretionary provisions in earnings management: Evidence from the Netherlands. Journal of International Accounting Research, 3(2), 27-43.
  • Cleary, R., & Thibodeau, J.C. (2005). Applying digital analysis using Benford's law to detect fraud: The dangers of Type I errors. Auditing: A Journal of Practice & Theory, 24(1), 77-81.
  • Rodriguez, R.J. (2004). Reducing false alarms in the detection of human influence on data. Journal of Accounting Auditing and Finance, 19(2), 141-158.
  • Ronen, J., & Sadan, S. (1981). Smoothing income numbers: Objectives, means and implications. Addison-Wesley Publishing.
  • Skinner D., Sloan R. (2002). Earnings surprises, growth expectations, and stock returns, or don't let an earning torpedo sink your portfolio. Review of Accounting Studies, 7 (6), 289-312.
  • Skousen, J.C., Guan, L., & Wetzel, T.S. (2004). Anomalies and unusual patterns in reported earnings: Japanese managers round earnings. Journal of International Financial Management, 15(3), 212-234.
  • Thomas, J.K. (1989). Unusual patterns in reported earnings. The Accounting Review, 64(4), 773-787.
  • You, H. (2014). Valuation-driven profit transfer among corporate segments. Review of accounting studies, 19(2), 805-838.
Document Type
Publication order reference
YADDA identifier
JavaScript is turned off in your web browser. Turn it on to take full advantage of this site, then refresh the page.