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.

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References


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