Corporate governance and likelihood of fraud in Malaysia: from the perspective of fraud diamond theory

Fraudulent financial reporting undermines trust in financial systems and leads to poor decision-making. Despite the introduction of new laws and regulations, financial fraud continues to rise. Therefore, early detection and prevention are essential. Effective corporate governance helps manage companies properly, potentially reducing fraud risks. However, recent corporate governance practices are under scrutiny due to ongoing fraud cases. Weak governance can result in inadequate internal controls, giving executives opportunities to commit fraud. This study uses the Fraud Diamond Theory to examine how various components of corporate governance relate to the likelihood of fraudulent financial reporting, measured by the F-Score model developed by Dechowet al. (2011). Analysing 61 construction companies listed on Bursa Malaysia from 2018 to 2021, the study finds that certain corporate governance variables, such as the presence of independent directors and board gender diversity, can reduce the likelihood of fraud. Additionally, the research highlights that CEO duality can also serve as a predictor of fraud risk. This study offers novel insights into corporate governance variables that regulators can use to predict the potential for fraud among listed companies.