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Perception of Corporate Governance Factors in Mitigating Financial Statement Fraud in Emerging Markets: Jordan Experience

Author

Listed:
  • Mohammed Shanikat

    (Accounting Department, Faculty of Business, Al-Balqa Applied University, Al-Salt 19117, Jordan)

  • Mai Mansour Aldabbas

    (Great Salt Municipality, Al-Salt 19110, Jordan)

Abstract

This study investigates the influence of corporate governance on reducing financial statement fraud (FSF) in Jordanian service and industrial companies listed on the Amman Stock Exchange from 2018 to 2022. To achieve this, the study employed the Beneish M-score model to assess the likelihood of FSF and logistic regression to examine the influence of corporate governance structure on fraud mitigation. The study identified 13 independent variables, including board size, board director’s independence, board director’s compensation, non-duality of CEO and chairman positions, board diversity, audit committee size, audit committee accounting background, number of annual audit committee meetings, external audit fees, board family business, the presence of women on the board of directors, firm size, and market listing on FSF. The study included 74 companies from both sectors—33 from the industrial sector and 41 from the service sector. Primary data was collected from financial statements and other information published in annual reports between 2018 and 2022. The results of the study revealed a total of 295 cases of fraud during the examined period. Out of the 59 companies analyzed, 21.4% demonstrated a low probability of fraud, while the remaining 78.6% (232 observations) showed a high probability of fraud. The results indicate that the following corporate governance factors significantly impact the mitigation of financial statement fraud (FSF): independent board directors, board diversity, audit committee accounting backgrounds, the number of audit committee meetings, family business involvement on the board, and firm characteristics. The study provides several recommendations, highlighting the importance for companies to diversify their boards of directors by incorporating different perspectives and experiences.

Suggested Citation

  • Mohammed Shanikat & Mai Mansour Aldabbas, 2025. "Perception of Corporate Governance Factors in Mitigating Financial Statement Fraud in Emerging Markets: Jordan Experience," JRFM, MDPI, vol. 18(8), pages 1-25, August.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:8:p:430-:d:1716063
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    References listed on IDEAS

    as
    1. Alireza Tourani-Rad & Coral Ingley (ed.), 2010. "Handbook on Emerging Issues in Corporate Governance," World Scientific Books, World Scientific Publishing Co. Pte. Ltd., number 7502.
    2. Ahmad Ahed Bader & Yousef A. Abu Hajar & Sulaiman Raji Sulaiman Weshah & Bisan Khalil Almasri, 2024. "Predicting Risk of and Motives behind Fraud in Financial Statements of Jordanian Industrial Firms Using Hexagon Theory," JRFM, MDPI, vol. 17(3), pages 1-27, March.
    3. Dan W. French & Thibaut G. Morillon & Adam S. Yore & Andrew E. Kern, 2023. "The impact of exchange listing on corporate governance: Evidence from direct listings," The Financial Review, Eastern Finance Association, vol. 58(2), pages 197-234, May.
    4. Suhaily Hasnan & Mardhiahtul Huda Mohd Razali & Alfiatul Rohmah Mohamed Hussain, 2020. "The effect of corporate governance and firm-specific characteristics on the incidence of financial restatement," Journal of Financial Crime, Emerald Group Publishing Limited, vol. 28(1), pages 244-267, August.
    5. David Manry & Hua-Wei Huang & Yun-Chia Yan, 2023. "Financial statement fraud litigation, material weaknesses, and board characteristics," Accounting Research Journal, Emerald Group Publishing Limited, vol. 36(4/5), pages 349-368, June.
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    7. Brahmadev Panda & N. M. Leepsa, 2017. "Agency theory: Review of Theory and Evidence on Problems and Perspectives," Indian Journal of Corporate Governance, , vol. 10(1), pages 74-95, June.
    8. Husam Abu Khadra & Dursun Delen, 2020. "Nonprofit organization fraud reporting: does governance matter?," International Journal of Accounting & Information Management, Emerald Group Publishing Limited, vol. 28(3), pages 409-428, March.
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