AGENCY EFFECTS: RELATED-PARTY TRANSACTIONS, CORPORATE GOVERNANCE, AND FINANCIAL STATEMENT FRAUD IN INDONESIA

Marsellisa Nindito¹, Ilya Afianti², Poppy Sofia Koeswayo² and Nanny Dewi Tanzil²

¹Universitas Negeri Jakarta, Indonesia

²Universitas Padjadjaran, Indonesia

This study investigates the impact of related-party transactions on financial statement fraud in the Indonesian publicly listed firms grounded in agency theory. The research study is aimed at examining the need for good corporate governance in order to uphold reporting integrity. This research applies a quantitative approach and a sample of 500-unit data from the companies listed on the Indonesian Stock Exchange in the period from 2017 to 2019 is analyzed using logistic regression models. This study also utilizes moderating regression analysis so as to investigate the moderating roles of institutional ownership and independent commissioners in the research model. The study results have revealed that related-party transactions and institutional ownership significantly affect the likelihood of the financial statement fraud occurrence in Indonesia and that institutional ownership can moderate the impact of related-party transactions on the likelihood of the financial statement fraud occurrence. This study provides the empirical evidence on the role of related-party transactions and corporate governance in shaping the quality of financial statements in emerging economies.

Keywords: financial statement fraud, related-party transactions, institutional ownership, independent commissioners, agency theory

JEL Classification: M40, M41, M42, M48