How effective is corporate governance in preventing financial fraud in Indonesia Kompas100 firms?
DOI:
https://doi.org/10.55942/pssj.v4i7.326Keywords:
Corporate Governance, Financial Fraud, Fixed Effects Model, Indonesia, Kompas100 IndexAbstract
This study examines the relationship between corporate governance practices and the incidence of financial fraud among firms listed on the Kompas100 Index in Indonesia. Utilizing a panel dataset of 1,000 companies over the period from 2015 to 2023, the research employs a Fixed Effects Model (FEM) to analyze the impact of key governance variables, including board composition, ownership structure, and audit committee effectiveness, on fraud occurrence. The findings reveal that firms with a higher proportion of independent directors and more effective audit committees are less likely to engage in financial fraud. Conversely, concentrated ownership and higher leverage are associated with an increased likelihood of fraud. These results underscore the importance of robust governance mechanisms in preventing fraud, particularly in the context of Indonesia's evolving corporate landscape. The study also discusses the limitations of the research and offers policy recommendations to strengthen corporate governance frameworks, thereby enhancing the integrity of Indonesia's financial markets.
References
Ahmed, S., Mushtaq, M., Fahlevi, M., Aljuaid, M., & Saniuk, S. (2023). Decomposed and composed effects of economic freedom on economic growth in south Asia. Heliyon, 9(2). https://doi.org/10.1016/j.heliyon.2023.e13478
Ali, A., & Zhang, W. (2015). CEO tenure and earnings management. Journal of Accounting and Economics, 59(1), 60–79.
Al-Omari, Z., Alomari, K., & Aljawarneh, N. (2020). The role of empowerment in improving internal process, customer satisfaction, learning and growth. Management Science Letters, 10(4), 841–848.
Al-Sartawi, A. M. M., & Sanad, Z. (2019). Institutional ownership and corporate governance: Evidence from Bahrain. Afro-Asian Journal of Finance and Accounting, 9(1), 101–115.
Fahlevi, M., Ahmad, M., Balbaa, M. E., Wu, T., & Aljuaid, M. (2023). The efficiency of petroleum and government health services to benefit life expectancy during the inefficiencies of hydroelectricity consumption. Environmental and Sustainability Indicators, 19, 100289. https://doi.org/10.1016/j.indic.2023.100289
Fahlevi, M., Moeljadi, M., Aisjah, S., & Djazuli, A. (2022). Blockchain Security and Corporate Governance. Int. Conf. Cybern. Intell. Syst., ICORIS. 4th International Conference on Cybernetics and Intelligent System, ICORIS 2022. https://doi.org/10.1109/ICORIS56080.2022.10031537
Fahlevi, M., Moeljadi, M., Aisjah, S., & Djazuli, A. (2023). Assessing the Sustainability of Firm Value: The Impact of Board Composition, Firm Size, and Earnings Manipulation in the LQ45 Index. E3S Web of Conferences, 426, 02042. https://doi.org/10.1051/e3sconf/202342602042
Ghafoor, A., Zainudin, R., & Mahdzan, N. S. (2019). Corporate fraud and information asymmetry in emerging markets. Journal of Financial Crime.
Husnah, H., & Fahlevi, M. (2023). How do corporate social responsibility and sustainable development goals shape financial performance in Indonesia’s mining industry? Uncertain Supply Chain Management, 11(3), 1383–1394. https://doi.org/10.5267/j.uscm.2023.5.099
Istan, M., & Fahlevi, M. (2020). The Effect of External and Internal Factors on Financial Performance of Islamic Banking. Jurnal Ekonomi & Studi Pembangunan, 21(72), 137–145. https://doi.org/10.18196/jesp.21.1.5036
Juhandi, N., Zuhri, S., Fahlevi, M., Noviantoro, R., Nur Abdi, M., & Setiadi. (2020). Information Technology and Corporate Governance in Fraud Prevention. In Warsito B., Sudarno, & Putranto Triadi T. (Eds.), E3S Web Conf. (Vol. 202). EDP Sciences. https://doi.org/10.1051/e3sconf/202020216003
Kayani, U. N., Fahlevi, M., Mumtaz, R., Qaruty, R. A., & Asad, M. (2023). The Nexus between Carbon Emissions and Per Capita Income of Households: Evidence from Japanese Prefectures. International Journal of Energy Economics and Policy, 13(6), Article 6. https://doi.org/10.32479/ijeep.15042
Khan, T., Wei, L., Khan, A., Fahlevi, M., Aljuaid, M., & Ali, S. (2024). Economic expansion and innovation: A comprehensive analysis of Pakistan’s path to technological excellence. PLOS ONE, 19(4), e0300734. https://doi.org/10.1371/journal.pone.0300734
Kuldasheva, Z., Ahmad, M., Salahodjaev, R., & Fahlevi, M. (2023). Do Tourism and Renewable Energy Influence CO2 Emissions in Tourism-Dependent Countries? International Journal of Energy Economics and Policy, 13(6), Article 6. https://doi.org/10.32479/ijeep.14410
Lind, D. A., Marchal, W. G., & Wathen, S. A. (2018). Statistical Techniques in Business & Economics (17th ed., p. 897). McGraw Hill Education.
Meiryani, Fahlevi, M., Rivalldo, K., Ariefianto, M. D., Winoto, A., Wahyuningtias, D., & Syamil, A. (2023). Corporate governance and return on assets in mining industry companies: The developing market study. Corporate Governance and Organizational Behavior Review, 7(4), 94. https://doi.org/10.22495/cgobrv7i4p8
Meiryani, Huang, S. M., Soepriyanto, G., Jessica, Fahlevi, M., Grabowska, S., & Aljuaid, M. (2023). The effect of voluntary disclosure on financial performance: Empirical study on manufacturing industry in Indonesia. PloS One, 18(6), e0285720. https://doi.org/10.1371/journal.pone.0285720
Meiryani, M., Anggito Darmawan, M., Lusianah, L., Bramulya Ikhsan, R., & Juli Setiadi, N. (2021). The Effect of Fraud Detection and Prevention on Financial Performance Study on Trading Company. ACM Int. Conf. Proc. Ser., 219–227. https://doi.org/10.1145/3494583.3494634
Ringle, C. M., Sarstedt, M., Mitchell, R., & Gudergan, S. P. (2020). Partial least squares structural equation modeling in HRM research. The International Journal of Human Resource Management, 31(12), 1617–1643.
Saunders, M., Lewis, P., & Thornhill, A. (2009). Research Methods for Business Students (5th ed.). Prentice Hall.
Sekaran, U., & Bougie, R. (2016). Research methods for business: A skill building approach. John Wiley & Sons.
Shah, S. H. A., Fahlevi, M., Jamshed, K., Aman, N., Rafiq, N., Jermsittiparsert, K., & Aljuaid, M. (2023). Sustaining the Earth: Unraveling the Synergy of Workplace Spirituality, Responsible Leadership, and Pro-Environmental Behavior in Pakistan’s SMEs. Psychology Research and Behavior Management, 16, 3075–3093. https://doi.org/10.2147/PRBM.S413606
Song, B., Chung, H., Kim, B.-J., & Sonu, C. H. (2023). Do business trainings for audit committees matter in organizations? Focusing on earnings management. Finance Research Letters, 51, 103423. https://doi.org/10.1016/j.frl.2022.103423
Watto, W. A., Fahlevi, M., Mehmood, S., Asdullah, M. A., & Juhandi, N. (2023). Executive compensation: A justified reward or a mis-fortune, an empirical analysis of banks in Pakistan. Journal of Open Innovation: Technology, Market, and Complexity, 9(3), 100092. https://doi.org/10.1016/j.joitmc.2023.100092
Yusuf, M., Dasawaty, E. S., Esra, M. A., Apriwenni, P., Meiden, C., & Fahlevi, M. (2024). Integrated reporting, corporate governance, and financial sustainability in Islamic banking. Uncertain Supply Chain Management, 12(1), 273–290. https://doi.org/10.5267/j.uscm.2023.9.022
Yusuf, M., Hakim, L., Hendra, J., Kamar, K., Idawati, W., Winarso, E., Meiden, C., & Fahlevi, M. (2023). Blockchain technology for corporate governance and IT governance: A financial perspective. International Journal of Data and Network Science, 7(2), 927–932. https://doi.org/10.5267/j.ijdns.2022.12.018