The impact of ownership structure and company size on corporate financial fraud: An empirical study of manufacturing companies

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Abstract

The concept of corporate deviant behavior occurs due to pressure on company profits and reputation. This pressure can trigger financial and non-financial fraud and increase the risk of corruption (Sukmadilaga et al., 2022; Vian, 2020; Zhang et al., 2023). This study investigates the effect of domestic and foreign ownership on financial fraud. In detecting financial fraud using the Beneish model, it will be stated that the company is considered a manipulator or non-manipulator. There were 315 observational data from 63 manufacturing companies listed on the Indonesia Stock Exchange (IDX). Along with a multiple linear regression testing model, data was analyzed using SPSS 23 software. This finding shows that foreign and domestic ownership positively affects financial fraud. It has a role in increasing companies to commit financial statement fraud following signaling theory with agency theory, where management and principles have their own goals in shaping interests in companies that cause moral hazard problems. Meanwhile, the size of the company negatively affects financial fraud. This has an impact on preventing companies from financial fraud. In Indonesia, opportunistic behavior focuses on manipulating performance by opportunistically forming groups within companies to make policies and decisions that benefit capital owners.

Keywords: Ownership Structure, Company Size, Corporate Financial Fraud, Manufacturing Companies

Authors’ individual contribution: Conceptualization — S.T.U.; Methodology — S.T.U., Formal Analysis — S.T.U.; Data Curation — W.M.; Validation — W.M.; Writing — Original Draft — S.T.U.; Writing — Review & Editing — W.M.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G3, G4, G32

Received: 22.10.2023
Accepted: 04.12.2024
Published online: 09.12.2024

How to cite this paper: Utomo, S. T., & Mawardi, W. (2024). The impact of ownership structure and company size on corporate financial fraud: An empirical study of manufacturing companies. Corporate Law & Governance Review, 6(4), 74–85. https://doi.org/10.22495/clgrv6i4p7