Does Financial Stability Prevent Fraud? Examining the Influence of External Pressures on Financial Statement Manipulation

Abstract

This study examines the impact of Financial Stability on Financial Statement Fraud, with a focus on the moderating role of External Pressure. The research utilizes Panel Least Squares (PLS) regression analysis to assess the relationship between financial stability (measured through various financial ratios) and financial statement fraud. Additionally, the study incorporates external pressure as a moderating variable to understand how factors such as market competition and regulatory requirements influence the likelihood of fraudulent behavior in firms. The results indicate a significant negative relationship between financial stability and financial statement fraud, with higher financial stability correlating with a lower incidence of fraud. Moreover, external pressure strengthens this relationship, highlighting that external forces interact with internal financial conditions to impact fraudulent activities. The findings contribute to the growing literature on financial fraud prevention, emphasizing the importance of maintaining strong financial health and considering external factors when addressing fraud risks. These results have practical implications for corporate governance and risk management strategies, particularly in industries facing high external pressures.