The Effectiveness of Corporate Governance in Constraining Fraud: Evidence from Listed Manufacturing Firms in Indonesia

Abstract

Objective – The purpose of this study is to examine the direct effect of good corporate governance mechanisms on financial statement fraud with earnings management as a mediating variable.Design/methodology – This study used secondary data from manufacturing companies listed on the Indonesia Stock Exchange for the 2013-2017 period. The sample was determined using the purposive sampling method and was chosen based on certain considerations or criteria. The data in this study was analyzed using partial least square and performed with WarpPLS 5.0 software.Results – The results of this study prove that the mechanism of good corporate governance has a negative effect on financial statement fraud and earnings management. Earnings management can affect the effectiveness of good corporate governance mechanisms on financial statement fraud.Research limitations/implications - This research promotes the need for a company to inspect and maintain the importance of good corporate governance to avoid earnings management and fraud practices. From this research, investors can identify which companies apply good corporate governance in their company activities and systems.

Kepemilikan Perusahaan, Manajemen Laba, dan Kecurangan Laporan Keuangan di Indonesia dan Malaysia

“…Manajer memiliki peluang untuk melakukan fraud ketika ada kesenjangan informasi dengan memanipulasi informasi keuangan yang menjadi acuan investor [9]. Menurut [18] dan [25], kecurangan laporan keuangan dimanfaatkan oleh perusahaan yang menghadapi kesulitan keuangan dan didorong oleh oportunisme yang menyimpang. Salah satu bentuk kecurangan yaitu menutupi performa buruk seorang manajer agar manajer tersebut dapat terus bekerja untuk perusahaan [7].…”

“…Teori keagenan dalam tata kelola perusahaan dapat digunakan untuk membujuk manajer (agen) untuk memastikan bahwa investor (prinsipal) menerima pengembalian investasi mereka [25]. Asimetri informasi dan ketidakselarasan kepentingan antara prinsipal dan agen diharapkan dapat ditanggulangi dengan tata kelola perusahaan untuk menghindari kecurangan dalam laporan keuangan dan membatasi praktik manajemen laba [5], [7], [21].…”

CSR, Good Corporate Governance, Corporate Value: Moderation of Financial Performance

“…Furthermore, agency theory is used to comprehend the concept of corporate governance. The clear division of firm controlling and owning rights is the principle of good corporate governance [33]. This split will pose issues because of the inequalities in interests between shareholders as principals and management as agents.…”