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Corporate Governance Effectiveness as a Deterrent to Financial Statement Fraud: Indonesian Evidence

Author

Listed:
  • Farah Pradini Ilda Saputri

    (Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia)

  • Nurul Azlin Azmi

    (Faculty of Accountancy, Universiti Teknologi MARA, Cawangan Johor, Kampus Segamat, Malaysia)

  • Norbalkish Zakaria

    (Accounting Research Institute, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia)

Abstract

This study aimed to examine the effect of internal and external corporate governance effectiveness in deterring Financial Statement Fraud (FSF). Internal governance mechanism proxied by director competencies and the independent audit committee (INDAC), while the external governance mechanism is proxied by the change of external auditor (CHEXA). The final sample consisted of 187 companies in the year 2023 from the manufacturing companies listed in the IDX (Indonesia Stock Exchange). The financial statement fraud was determined using the Beneish M-Score. The independent variables are represented by director competencies (OSHIP, BIND, and CHDIR), INDAC, and CHEXA. All data was obtained from both Eikon Datastream and the IDX official website. This study finds that INDAC has a positive and significant relationship with FSF due to the opportunity of INDAC to reveal FSF (Fraud Diamond Theory). While other governance indicators show insignificant results on the FSF. This study adds to the growing literature on corporate governance in Indonesia, and it is fruitful for the regulator to revise the code (The Code of Good Corporate Governance Indonesia) to ensure its alignment with the recent market development and stakeholder needs. This study only focuses on the manufacturing industry and a one-year observation.

Suggested Citation

  • Farah Pradini Ilda Saputri & Nurul Azlin Azmi & Norbalkish Zakaria, 2025. "Corporate Governance Effectiveness as a Deterrent to Financial Statement Fraud: Indonesian Evidence," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(9), pages 6928-6942, September.
    • Handle: RePEc:bcp:journl:v:9:y:2025:issue-9:p:6928-6942
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    References listed on IDEAS

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