ROLE OF INDEPENDENT DIRECTORS IN MITIGATING FINANCIAL STATEMENT FRAUD: INSIGHTS

Abstract

The role of independent directors has gained increasing attention in corporate governance, particularly in their ability to mitigate financial statement fraud. This study investigates the relationship between board independence and the likelihood of financial fraud within Indian companies, using the Altman Z-score as a measure of financial health. The analysis explores how the proportion of independent directors on corporate boards impacts fraud detection and prevention, alongside other board attributes such as audit committee size, board size, and gender diversity. The findings suggest that a higher proportion of independent directors significantly reduces the likelihood of financial misreporting, enhancing transparency and accountability. The results highlight the critical governance role of independent oversight, emphasizing the need for stringent regulations and best practices to strengthen board independence in safeguarding financial integrity. These insights contribute to ongoing discussions on corporate governance reforms and provide practical recommendations for firms and policymakers to reduce fraud risk in emerging markets like India.