Exploring The Relation Between Financial Distress and Financial Errors or Fraud: A Case Study of Borsa İstanbul.

Can, Esin Nesrin

In today's intricate financial landscape, the precise detection of financial errors and fraudulent activities has emerged as a paramount concern for investors, regulators, and market participants. This study centers on the utilization of two prominent financial analysis tools, namely the Altman Z-score and the Beneish M-score Model, to assess their capacity for identifying such financial errors and fraud. The Altman Z-score, a well-established model, evaluates a company's financial distress and bankruptcy risk by considering a combination of five financial ratios. Conversely, the Beneish M-score Model, widely acknowledged for its effectiveness, detects financial statement manipulation through eight financial indicators. After analyzing the outcomes generated by these two models, we undertake a comprehensive examination of the quantified relationship between financial distress and financial manipulation. By applying these models to companies listed on the Borsa İstanbul 30 Index, this research aims to illuminate their efficiency in uncovering signs of financial distress or fraudulent reporting across various sectors, excluding banking. The study period spans from 2017 to 2021. As effective fraud detection mechanisms are fundamental for maintaining market integrity and ensuring the sustainability of investments and overall market trust, the findings of this study have the potential to provide valuable insights for investors and auditors in their continuous endeavors to enhance the transparency, integrity, and sustainability of financial markets. Moreover, this research contributes to the ongoing discourse on fortifying financial market oversight and risk management practices.

CORPORATE finance; ECONOMIC indicators; INVESTORS; FRAUD; RISK management in business; FINANCIAL ratios; INVESTMENT management; FRAUD investigation; SUSTAINABILITY

Turkish Studies - Economics, Finance, Politics, 2023, Vol 18, Issue 4, p1283

2667-5625

Academic Journal

10.7827/TurkishStudies.72753