Financial distress and fraud hexagon theory components on financial statement fraud

I.G.A. Kade Amanda Githayoni; Ni Ketut Rasmini; I Ketut Sujana; I Nyoman Wijana Asmara Putra; Gerianta Wirawan Yasa; Ni Made Adi Erawati

doi:10.21744/ijbem.v8n3.2417

Authors

I.G.A. Kade Amanda Githayoni
amandagithayoni@gmail.com
Udayana University, Denpasar, Indonesia
Ni Ketut Rasmini Udayana University, Denpasar, Indonesia
I Ketut Sujana Udayana University, Denpasar, Indonesia
I Nyoman Wijana Asmara Putra Udayana University, Denpasar, Indonesia
Gerianta Wirawan Yasa Udayana University, Denpasar, Indonesia
Ni Made Adi Erawati Udayana University, Denpasar, Indonesia

Keywords:

Financial Distress, Financial Statement Fraud, Fraud Hexagon Theory

Abstract

This study aims to examine the effect of financial distress and the components of the Fraud Hexagon Theory on financial statement fraud among insurance companies listed on the Indonesia Stock Exchange (IDX) during the 2019–2023 period. From the total population, 12 companies met the sampling criteria, resulting in 60 firm-year observations over the five-year research period. Data were collected using a non-participant observation method by downloading company information from the official IDX website (www.idx.co.id). The analytical method employed was binary logistic regression, processed using STATA software. The results indicate that financial distress (X1), pressure (X2), opportunity (X3), rationalization (X4), capability (X5), arrogance (X6), and collusion (X7) all have a significant positive effect on financial statement fraud. These findings support both the Fraud Hexagon Theory and Agency Theory, demonstrating that financial distress and the six elements of the fraud hexagon contribute to fraudulent financial reporting. Practically, the findings serve as a valuable reference for investors, emphasizing the importance of assessing financial reports not only based on numerical indicators but also by considering non-financial factors that may trigger fraudulent behavior.

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