- Book Chapter
- 10.1002/9781394175574.ch7
The Extraction of Features That Characterize Financial Fraud Behavior by Machine Learning Algorithms
- May 28, 2024
- George X Yuan + 6 more +6
The purpose of this paper is to discuss how to use machine learning algorithms to screen the features and related applications of the characteristic indicators in describing a company's financial fraud behavior under the framework of big data analysis. In particular, we first screen the “characteristic indicator” (features) related to the financial anomalies due to a company's fraudulent financial reports then extract (fraud) features based on the corresponding fraudulent actions. In addition, the validation test is carried out to test the ability of fraud features’ (indicators’) performance in identifying and providing warning signals on fraud events. Specifically, by extracting the characteristics (features) of fraudulent financial behaviors related to financial frauds, based on traditional (structure) financial data and unstructured corporate governance structures, the associated features (characteristic indicators) in interpreting the risk warning system of corporate governance structures are studied and established in this paper, and then these indicators (features) are applied to the case studies. The results show that the features in describing financial frauds and financial anomalies constructed from financial reports to corporate governance could achieve at least minimum purpose in predicting financial fraud with early warning.
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