Abstract
Financial statement fraud (FSF) is a significant contributor to losses and has persisted for several years (Association of Certified Fraud Examiners [ACFE], 2022). Previous studies concluded that corporate governance (CG) can significantly reduce FSF (Mangala & Kumari, 2015; Rostami & Rezaei, 2022; Velte, 2023). However, while the literature study acknowledges that CG plays an important role in fraud prevention and emphasizes the importance of effective board composition, effective audit committees, independent commissioners, gender diversity, ownership structure, and engagement with Big 4 accounting firms to the occurrence of FSF, the empirical evidence in Indonesia suggests inconsistent results. This research investigates the role of CG in preventing FSF in Indonesia. The study tested a sample of 72 companies sanctioned by the Financial Services Authority (Otoritas Jasa Keuangan, OJK), Republic of Indonesia, in 2019–2021 and another 72 control sample companies from similar sectors and equivalent market capitalization. A total of 144 data units are analyzed using panel data regression and independent t-test. The study results show that the frequency of audit committee meetings and institutional ownership positively affect the indication of FSF. The study result also shows significant mean differences in the frequency of audit committee meetings and institutional ownership between companies indicated and not indicated to commit FSF. Besides enriching the global discourse on best CG practices, this study provides actionable recommendations for enhancing the integrity and transparency of financial reporting.
Published Version
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