Earnings management detection and its impact on european funds: a data analytics approach

Portugal will receive €66.2 billion from the European Union in the coming years, with €45 billion to mitigate the impact of the pandemic on the economy and €21.2 billion from the next Community framework 2021-2027. But the success of allocating European funds to SMEs and the impact on the economy remains under discussion, making it urgent to find efficient and effective solutions for the benefit of the Portuguese economy. Thus, how can the earnings management combined with Analytics techniques benefit the process of allocating financial funds to Portuguese SMEs? To answer the question formulated, the Beneish M-Score model was used, in combination with data analysis and Decision Trees - CART and CHAID, with the objective of predicting the success of projects to European Union funds. The results are promising, by identifying as good predictors the Beneish M-Score indices of the success of SME investment projects at the time of application. Thus, the management bodies of the European funds gain insights into the importance that the manipulation of results can have in the approval of project applications, but not if it is subsequently reflected in this funding in successful projects.