Does Financial Distress Contribute on Relation Between Debt Intensity and Debt to Capital at Book with Fraud?

Junaidi Junaidi, Noorlailie Soewarno, Isnalita Isnalita

Abstract


This research aims to examine the negative influence of debt ownership on fraud. Furthermore, this research examines the influence of a high level of financial distress on the relationship between debt ownership and fraud. This research observes manufacturing companies in ASEAN countries. In order to ensure that the research model is robust, this research uses variance-covariance error analysis. The results prove that debt ownership can mitigate fraud, but when the company experiences high financial distress this relationship changes to positive. To the best of the researcher's understanding, the use of debt intensity and the use of the financial distress variable as a moderating variable as an explanation of fraud has never been done. Both of these are new research along with findings that can add to theory building.  The logical argument that this finding can be used as a theory building is that the conclusion is that when debt ownership obtains abnormal returns through a high cost of debt, supervision is weakened.

Full Text:

PDF

References


Annisa, Rizqy Arasiani et al. 2024. “Conceptual Model of Financial Ratios in Detecting Fraud in Local Government Financial Statement.” Journal of Economics Finance and Management Studies 07(03). doi: 10.47191/jefms/v7-i3-06.

Ardhiansyah, Arief Satria et al. 2019. "Analysis of the Influence of Financial Performance and Corporate Governance on the Possibility of Financial Statement Fraud." Journal of Sharia Financial Engineering and Auditing 6(2):149. doi: 10.12928/j.reksa.v6i1.1375.

Autore, D. M. et al. 2014. “The Effect of Securities Litigation on External Financing.” Journal of Corporate Finance 27:231–50. two: 10.1016/j.jcorpfin.2014.05.007.

Boivie, Steven et al. 2012. “Time for Me to Fly: Predicting Director Exit at Large Firms.” Academy of Management Journal 55(6):1334–59. doi: 10.5465/amj.2010.1083.

Graham, John R. et al. 2008. “Corporate Misreporting and Bank Loan Contracting☆.” Journal of Financial Economics 89(1):44–61. doi: 10.1016/j.jfineco.2007.08.005.

Hermawati, Lutfiana, and Murtanto Murtanto. 2021. “The Influence of Fraud Triangle Upon the Existence of Financial Statement Fraud.” Indonesian Management and Accounting Research 18(2):155–85. two: 10.25105/imar.v18i2.1205.

Ifada, L. M., and I. Yulianto. 2022. “The Role of Corporate Governance in Preventing Financial Distress.” Pp. 291–300 in Lecture Notes in Networks and Systems. Vol. 527 LNNS.

Johnston, R. et al. 2009. “Sell-Side Debt Analysts.” Journal of Accounting and Economics 47(1–2):91–107. doi: 10.1016/j.jacceco.2008.07.001.

Lai, T. K. et al. 2019. “The Impact of Corporate Fraud on Director-Interlocked Firms: Evidence from Bank Loans.” Journal of Business Finance and Accounting 46(1–2):32–67. two: 10.1111/jbfa.12362.

Lou, Yung-I., and Ming-Long Wang. 2011. “Fraud Risk Factor of the Fraud Triangle Assessing the Likelihood of Fraudulent Financial Reporting.” Journal of Business & Economics Research (Jber) 7(2). doi: 10.19030/jber.v7i2.2262.

Mansi, Sattar A. et al. 2021. “Bond Covenants, Bankruptcy Risk, and the Cost of Debt.” Journal of Corporate Finance 66:101799. doi: https://doi.org/10.1016/j.jcorpfin.2020.101799.

Nurfadilah, Sri et al. 2024. “Influence of Fraud Triangle on Financial Statement Fraud With Financial Distress as an Intervening Variable.” International Journal of Multidisciplinary Approach Research and Science 2(03):1232–47. two: 10.59653/ijmars.v2i03.934.

Ormazábal, Gaizka. 2018. “Are Directors More Likely to Relinquish Their Riskiest Directorships After the Financial Crisis?” Journal of Corporate Finance 53:1–20. two: 10.1016/j.jcorpfin.2018.09.001.

Paiva, I. S. 2018. “Contracting Debt and the Quality of Financial Reporting in Private Firms.” Accounting and Administration 63(2). doi: 10.22201/fca.24488410e.2018.1663.

Rachmawati, N. A. et al. 2023. “Complementary Level of Financial and Tax Aggressiveness and the Impact on Cost of Debt: A Cross-Country Study.” South African Journal of Accounting Research 37(3):161–76. doi: 10.1080/10291954.2022.2143226.

Rahman, M. J., and X. Jie. 2024. “Fraud Detection Using Fraud Triangle Theory: Evidence from China.” Journal of Financial Crime 31(1):101–18. doi: 10.1108/JFC-09-2022-0219.

Rahmawati, Diana. 2012. "Analysis of Factors That Influence the Use of Information Technology." Journal of Economics and Education 5(1). doi: 10.21831/give.v5i1.606.

Rawal, A. et al. 2024. “Does Financial Distress Induce Companies to Restructure Their Financing Mix?” Journal of Economic and Administrative Sciences. two: 10.1108/JEAS-01-2023-0004.

Saputra, Aditya Danang et al. 2024. “Does Financial Distress Contribute as an Intermediary Factor in Detecting Financial Statement Fraud ?” Centralization 13(2):45–63. doi: 10.33506/sl.v13i2.3230.

Sawangarreerak, Siriporn, and Putthiporn Thanathamathee. 2021. “Detecting and Analyzing Fraudulent Patterns of Financial Statement for Open Innovation Using Discretization and Association Rule Mining.” Journal of Open Innovation: Technology, Market, and Complexity 7(2):128. doi: https://doi.org/10.3390/joitmc7020128.

Setianto, Rahmat Heru et al. 2022. “Working Capital Financing and Corporate Profitability in the ASEAN Region: The Role of Financial Development.” Entrepreneurial Business and Economics Review 10(1):51–64. two: 10.15678/eber.2022.100104.

Shakouri, Mohammad Mahdi et al. 2021. “Explaining the Beneish Model and Providing a Comprehensive Model of Fraudulent Financial Reporting(FFR).” International Journal of Nonlinear Analysis and Applications 12(Special Issue):39–48. doi: 10.22075/IJNAA.2021.4793.

Skousen, Christopher J. et al. 2008. “Detecting and Predicting Financial Statement Fraud: The Effectiveness of the Fraud Triangle and SAS No. 99.” SSRN Electronic Journal. two: 10.2139/ssrn.1295494.

Zhou, X., and R. M. Reesor. 2015. “Misrepresentation and Capital Structure: Quantifying the Impact on Corporate Debt Value.” Journal of Corporate Finance 34:293–310. two: 10.1016/j.jcorpfin.2015.07.007.


Refbacks

  • There are currently no refbacks.