THE EFFECT OF FRAUD DETECTION USING M-SCORE ON EXPECTED RETURNS IN PUBLICLY LISTED INDONESIAN MANUFACTURING COMPANIES

Abstract

Fraudulent financial statements cause economies to suffer significant income loss. As the
Indonesian economy grows, so too has financial statement fraud such that it has become a
priority concern among accountants and auditors. Messod D. Beneish developed a
mathematical ratio called m-score to detect earning manipulation in financial statements.
Companies with a higher m-score are more likely to be flagged with a red flag for
manipulating their financial statements. Firms that commit financial fraud will also earn
lower future returns. A higher m-score results in lower returns. This research examines the
relationship between m-score and expected returns (CAR) of green and red flagged publicly
listed Indonesian manufacturing companies.