مجلة الدراسات التجارية والاقتصادية المعاصرة
Volume 9, Numéro 1, Pages 221-239
2026-01-20
A Multi-digit Benford's Law Approach For Detecting Income Smoothing Sub-variables: An Advanced Quantitative Analysis Of Saudi Listed Companies
Authors : Dr. Bashir Bakri Agib Babiker . Dr. Ali Abbas Ali Awad Elseed .
Abstract
This study develops and empirically validates a comprehensive multi-digit Benford's Law framework for detecting income smoothing sub-variables among companies listed on the Saudi Stock Exchange (Tadawul). Using a sample of 2,580 firm-year observations from 172 companies (2015-2024), the study employs Smart PLS-SEM to analyze relationships between Benford's Law deviations (MAD₁, MAD₂, MAD₃, MAD₄) and five income smoothing dimensions. The findings reveal hierarchical detection capability where MAD₁ exhibits strongest overall detection power (β = 0.456, p < 0.001) for traditional smoothing methods, while MAD₃ and MAD₄ prove essential for detecting sophisticated timing manipulations (β = 0.412, p < 0.001). The model demonstrates substantial explanatory power (R² = 0.512-0.634) and superior predictive performance compared to traditional methods (45-65% improvement in accuracy). The research provides practical tools for the Capital Market Authority (CMA), auditors, and investors to enhance financial reporting quality assessment in Saudi Arabia.
Keywords
Benford's Law, Income Smoothing, Earnings Management, Saudi Stock Exchange, Tadawul
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