The Impact of Systematic Financial Fraud on Corporate Financial Health and the Effectiveness of Risk Quantification Models: Evidence from Luckin Coffee

DOI

10.2991/978-94-6463-811-0_135How to use a DOI?

Keywords

Luckin Coffee; financial fraud; Altman Z - score; Beneish M-Score

Abstract

The 2020 revelation of Luckin Coffee’s systematic financial fraud, involving RMB 2.2 billion in fabricated sales, triggered a global credibility crisis for U.S.-listed Chinese firms. This scandal exposed vulnerabilities in traditional financial risk models to detect complex, large-scale manipulations. This study examines Luckin Coffee’s financial data (2019–2022) to evaluate how systematic fraud impacts corporate financial health and assess the effectiveness of risk quantification models (Altman Z-score and Beneish M-Score) in identifying fraud signals. Through ratio analysis and financial statement deconstruction, key metrics—including revenue growth rate, gross profit margin, cash flow patterns, and leverage ratios—were analyzed alongside Altman Z-score Model and Beneish M-Score models. During the fraud period (2019), manipulated metrics created artificial financial stability. The Z-score (1.67) falsely placed Luckin in the “grey zone,” while the M-Score (-0.379) crossed the manipulation threshold (-1.78). Post-fraud restructuring (2021–2022) demonstrated authentic recovery, with Z-scores rising to 6.73 and M-Scores stabilizing below -1.78. The study concludes that integrating non-financial indicators (e.g., store traffic anomalies, user retention rates) with revised model thresholds is essential for timely fraud detection in high-growth, subsidy-driven business models.

Copyright

© 2025 The Author(s)

Open Access

Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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TY  - CONF
AU  - Botong Zhang
PY  - 2025
DA  - 2025/08/14
TI  - The Impact of Systematic Financial Fraud on Corporate Financial Health and the Effectiveness of Risk Quantification Models: Evidence from Luckin Coffee
BT  - Proceedings of the 2025 5th International Conference on Enterprise Management and Economic Development (ICEMED 2025)
PB  - Atlantis Press
SP  - 1227
EP  - 1238
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-811-0_135
DO  - 10.2991/978-94-6463-811-0_135
ID  - Zhang2025
ER  -