This is a short-selling strategy based on Professor Beneish's M-Score - this is a mathematical model that uses eight financial ratios from the company's financial statements to assess the degree to which the earnings may have been manipulated. It is similar to the Altman Z-Score, but it is focused on detecting earnings manipulation rather than bankruptcy. The research suggests that a score greater than -1.78 indicates a strong likelihood of a firm being a manipulator. Here is the link to the original Detection of Earnings Manipulation paper as well as the subsequent paper - The Relation between Accruals and Earnings Manipulation.
The screen below highlights companies that have had a M-score above the threshold for two years in a row in order to reduce the likelihood that a given year's result is coincidental or a rogue data input error. more »