Benford’s law first significant digit and distribution distances for testing the reliability of financial reports in developing countries

2017/11/25 by Jing Shi, Marcel Ausloos, Tingting Zhu
Economics, Econometrics and Finance · Mathematics · Physics and Astronomy · #Arithmetic #Benford's law #Benford’s Law and Fraud Detection #Business #Computer science #Developing country #Distribution (mathematics) #Economic growth #Economics #Mathematical analysis #Mathematics #Numerical digit #Physics #Reliability (semiconductor) #Statistics #cond-mat.stat-mech #q-fin.ST #stat.AP

paper · pdf · doi:10.1016/j.physa.2017.11.017

22 pages, 34 references, 4 figures, 7 tables; to be published in Physica A

openalex publication_date 2017/11/25 · arxiv created 2017/11/30 · arxiv updated 2017/12/04 · openalex created_date 2017/12/04 · openalex updated_date 2026/08/05

Abstract

We discuss a common suspicion about reported financial data, in 10 industrial sectors of the 6 so called "main developing countries" over the time interval [2000-2014]. These data are examined through Benford's law first significant digit and through distribution distances tests. It is shown that several visually anomalous data have to be a priori removed. Thereafter, the distributions much better follow the first digit significant law, indicating the usefulness of a Benford's law test from the research starting line. The same holds true for distance tests. A few outliers are pointed out.

Citations

• Benford’s law predicted digit distribution of aggregated income taxes: the surprising conformity of Italian cities and regions
• Breaking the (Benford) Law
• On the Peculiar Distribution of the U.S. Stock Indexes' Digits
• Note on the Frequency of Use of the Different Digits in Natural Numbers