Susmita Dian Indiraswari

This study examines the impact of corporate governance on the probability of financial statement fraud and evaluates the moderating role of financial distress in this relationship. This issue remains highly relevant given the persistence of fraudulent financial practices despite evolving governance regulations. The analysis is conducted on a sample of 330 non-financial companies listed on the Indonesia Stock Exchange from 2021 to 2022. Using purposive sampling and secondary data, the study measures financial statement fraud with the F-score, corporate governance through institutional ownership, ineffective monitoring, regulatory compliance, and financial distress using the Zmijewski model. The study applies moderated regression analysis across three models. The results from Model 1 show that corporate governance has a significant negative effect on the likelihood of financial statement fraud (β = –0.085; p < 0.05). Model 2 finds that financial distress alone has a significant positive effect (β = 0.315; p < 0.05). Model 3 confirms a significant moderation effect, where financial distress strengthens the relationship between governance and fraud (interaction β = 0.353; p < 0.05). These findings indicate that while effective governance can reduce fraudulent financial reporting, this effect is influenced by a company’s financial state. Therefore, robust governance structures are vital, particularly in times of financial hardship. Future studies should consider external institutional mechanisms to further understand these dynamics.