A new quality factor adjusted by fraud probability

IF 6.9 2区经济学 Q1 BUSINESS, FINANCE Finance Research Letters Pub Date : 2025-03-11 DOI:10.1016/j.frl.2025.107153

Ying Chen , Yuqiao Bu , Libing Fang , Yuanchu Xu

引用次数: 0

Abstract

Owing to potential financial fraud by companies, we propose a new quality factor that is mitigated by the probability of financial fraud. We estimate fraud probability using a bivariate probit model that allows for unobservable companies that actually committed fraud but were not detected. Our empirical results show that the fraud-mitigated quality-minus-junk (fmQMJ) portfolio earns significant average excess returns in both China and the United States. Furthermore, it outperforms the original quality factor within the quintile groups of low size and low book-to-market ratio. A series of Fama–MacBeth regressions show that fmQMJ contributes a new pricing factor to the value-investing strategy widely advocated in practice and academia.

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按欺诈概率调整的新质量系数

由于公司存在潜在的财务欺诈，我们提出了一个新的质量因子，该因子可以通过财务欺诈的概率来减轻。我们使用双变量概率模型来估计欺诈概率，该模型允许实际实施欺诈但未被检测到的不可观察公司。我们的实证结果表明，欺诈抑制质量-垃圾（fmQMJ）投资组合在中国和美国都获得了显著的平均超额回报。此外，它在低规模和低账面市值比的五分之一组中优于原始质量因子。一系列的Fama-MacBeth回归表明，fmQMJ为实践和学术界广泛提倡的价值投资策略提供了一个新的定价因素。

本文章由计算机程序翻译，如有差异，请以英文原文为准。

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来源期刊

Finance Research Letters BUSINESS, FINANCE-

CiteScore

11.10

自引率

14.40%

发文量

863

期刊介绍： Finance Research Letters welcomes submissions across all areas of finance, aiming for rapid publication of significant new findings. The journal particularly encourages papers that provide insight into the replicability of established results, examine the cross-national applicability of previous findings, challenge existing methodologies, or demonstrate methodological contingencies. Papers are invited in the following areas: Actuarial studies Alternative investments Asset Pricing Bankruptcy and liquidation Banks and other Depository Institutions Behavioral and experimental finance Bibliometric and Scientometric studies of finance Capital budgeting and corporate investment Capital markets and accounting Capital structure and payout policy Commodities Contagion, crises and interdependence Corporate governance Credit and fixed income markets and instruments Derivatives Emerging markets Energy Finance and Energy Markets Financial Econometrics Financial History Financial intermediation and money markets Financial markets and marketplaces Financial Mathematics and Econophysics Financial Regulation and Law Forecasting Frontier market studies International Finance Market efficiency, event studies Mergers, acquisitions and the market for corporate control Micro Finance Institutions Microstructure Non-bank Financial Institutions Personal Finance Portfolio choice and investing Real estate finance and investing Risk SME, Family and Entrepreneurial Finance