TITLE:
Business Prohibition—How Company’s Financial Statements Reflect the Positions of Convicted Persons?
AUTHORS:
Erkki K. Laitinen, Teija Laitinen
KEYWORDS:
Financial Crime, Business Prohibition, Convicted Persons, Financial Statements, Finnish Companies
JOURNAL NAME:
Theoretical Economics Letters,
Vol.13 No.4,
August
17,
2023
ABSTRACT: This study deals with the companies where persons who are convicted of a
business prohibition for aggravated financial crimes, have acted in various
positions. The main question is how the key figures in the financial statements
of these contact companies reflect the activities of these convicted people.
The study mainly concentrates on companies where the convicted person has acted
as a CEO or deputy CEO. Five research hypotheses are derived and four of them
are supported by evidence. The hypotheses were tested with empirical data,
which mainly consisted of very small micro, limited, private companies with
only 3 - 4 employees. There were originally 22 financial variables in the data, of which 10 were selected
for continuation. Finally, stepwise logistic regression (LR) analysis
was used to develop a model to detect companies with convicted persons. This
model included variables measuring company growth, liquidity, and solidity, but
not profitability. Moreover, a variable reflecting inconsistency in behavior of
financial ratios was incorporated into the model. In years 1 - 5 before
the sentence, the model correctly classified 63.4% of contact companies and
64.2% of non-contact companies. The classification accuracy of the model
decreased systematically when the positions of the convicted persons decreased.