Profitability, Liquidity, Leverage and Corporate Governance Impact on Financial Statement Fraud and Financial Distress as Intervening Variable

Authors: A. N. Adi,  Magister, Economic Faculty, Brawijaya University, Malang, Indonesia.
Z. Baridwan, Doctor of Philosophy in Accounting, Economic Faculty, Brawijaya University, Malang, Indonesia.
E. Mardiati, Doctor of Philosophy in Accounting, Economic Faculty, Brawijaya University, Malang, Indonesia.

Abstract: Financial statement can show the company management performance after human resource trust. Each public company is obligated to reveal the annual financial report. This research examined correlation among profitability, liquidity, leverage and corporate governance to financial statement fraud and financial distress as mediation variable. Based on the Association of Certified Fraud Examiners (ACFE) 2016, the financial statement fraud continuously grew from 2012-2016. It means that there were more companies having financial statement fraud motivation. In this research, financial distress had been a mediation variable before the financial statement fraud event. This research applied quantitative research using the fraud diamond theory. This research proved that there was an impact of profitability, leverage, shareholder > 3% and directors quantity to financial distress. This research showed that the higher company’s profitability, the lower financial distress company risks. Based on the research, the companies that had financial distress would tend to do the financial statement fraud.

Key words: Financial statement fraud, profitability, liquidity, leverage

Received: 31/08/2017

1st Revision: 30/09/2018

Accepted: 02/10/2018



1. Aghghaleh, S.F., Iskandar, T.M., & Mohamed, Z. M., 2014. Fraud Risk Factors of Fraud Triangle and theLikelihood of Fraud Occurrence: Evidence from Malaysia. Information Management and BusinessReview, vol. 6, no. 1, pp. 1–7.
2. Ainul, W., Wan, A., Razali, M., & Arshad, R., 2014. Disclosure of corporate governance structure andthe likelihood of fraudulent financial reporting. Procedia – Social and Behavioral Sciences, vol. 145, pp. 243–253.
3. Amendola, A, Maria L.R., Luca S., 2014. An analysis of the determinants of financial distress in Italy: Acompeting risks approach. International Review of Economics and Finance, doi:10.1016/j.iref.2014.10.012.
4. Amirya, M., & Atmini, S., 2008. Determinan Tingkat Hutang Serta Hubungan Tingkat Hutang TerhadapNilai Perusahaan: Perspektif Pecking Order Theory. Jurnal Akuntansi Dan Keuangan Indonesia, vol. 5, no. 2, pp. 227–244.
5. Andreas, Tanjung, A.R., & Sentosa, H., 2009. Pengaruh Financial Distress Dan Corporate GovernanceTerhadap Rekayasa Laporan Keuangan. Economic Journal, vol. 17, no. 2, pp. 38–50.
6. Association of Certified Fraud Examiner. 2016. Report to The Nations On Occupational Fraud andAbuse. ACFE. Retrieved January 3, 2016, retrieved from
7. Bhama V, Jain P.K, Yadav, 2015. Does firms’ pecking order vary during large deficits and surpluses? An empirical research on emerging economies. Procedia Economics and Finance 30, pp. 155 – 163. doi: 10.1016/S2212-5671(15)01279-4.
8. Beneish, M.D., Charles M.C. Lee, D. Craig Nichols, 2012. Fraud Detection and Expected Returns.
9. Bisogno M. and De Luca R., 2015. Financial Distress and Earnings Manipulation: Evidence from ItalianSMEs. Journal of Accounting and Finance, ISSN: 2249-3964 & E-ISSN: 2249-3972, Vol. 4, Issue. 1, pp. 042-051.
10. Dalnial, H., Kamaluddin, A., Sanusi, Z.M. and Khairuddin, K.S., 2014. Accountability in financialreporting: detecting fraudulent firms. Journal of Advanced Management Science, vol. 2, no. 1.doi:10.1016/j.sbspro.2014.06.011.
11. Eisenhardt, K.M., 1989. Agency theory: An assessment and review. Academy of management review, vol. 14, no. 1, 57-74.
12. Farida, K., Sri R, Akhmad N.H., 2015. The Determinant of Financial Distress on Indonesian FamilyFirms. Procedia – Social and Behavioral Sciences, vol. 219, pp. 440 – 447.
13. Febrina, P., 2010. Penyebab, dampak, dan prediksi dari financial distress serta solusi untukmengatasi financial distress. Jurnal Akuntansi Kontemporer, vol. 2 no. 2,pp. 191-205.
14. Government regulations No.24 of 98 about Information annual financial company.
15. Gruszczynski Marek, 2004. Financial distress of companies in Poland. International Advances inEconomic Research, vol. 10, no. 4.
16. Hanafi, Mamduh M., and Halim, A., 2005. Analisis Laporan Keuangan, 2th ed, Yogyakarta: STIE YKPN.
17. Hapsari, E.I., 2012. Kekuatan Rasio Keuangan Dalam Memprediksi Kondisi Financial DistressPerusahaan Manufaktur Di BEI. Jurnal Dinamika Manajemen, vol. 3, no. 2, pp. 101–109.
18. Harahap, L., & Wardhani, R., 2012. Analisis Komprehensif Pengaruh Family Ownership, MasalahKeagenan, Kebijakan Hutang, Corporate Governance dan Opportunity Growth TerhadapNilaiPerusahaan.
19. Ilman, M., Zakaria, A., & Nindito, M., 2011. The Influences Of Micro And Macro Variables TowardFinancial Distress Condition On Manufacture Companies Listed In Indonesia Stock Exchange In 2009. International Conference on Humanities and Social Sciences, vol. 3, pp. 1–12.
20. Jensen, M.C., & Meckling, W.H., 1976. Theory of the firm: Managerial behavior, agency costs andownership structure. Journal of financial economics, vo. 3, no. 4, pp. 305-360.
21. Kanapickiene, R., & Grundiene, Z., 2015. The Model of Fraud Detection in Financial Statements byMeans of Financial Ratios. Procedia – Social and Behavioral Sciences, vol. 213, pp. 321–327. Retrievedfrom
22. Law, P., 2011. Corporate governance and no fraud occurrence in organizations. Managerial AuditingJournal, vol. 26, no. 6, pp. 501–518. Retrieved from
23. Lehmann, E., & Warning, S., 2004. Governance Structures, Multidimensional Efficiency and FirmProfitability. Journal of Management and Governance, vol. 8, pp. 279–304.
24. Li, H., Wang, Z., & Deng, X., 2008. Ownership, independent directors, agency costs and financialdistress: evidence from Chinese listed companies. Corporate Governance, vol. 8, no. 5, pp. 622–636. Retrieved from
25. Manzaneque M, Alba Maria Priego, Elena Merino. (2015). Corporate governance effect on financialdistress likelihood: Evidence from Spain. Spanish Accounting Review. Retrieved from
26. Mardiana, A., 2015. Effect Ownership, Accountant Public Office, and Financial Distress to the PublicCompany Financial Fraudulent Reporting in Indonesia. Journal of Economics and Behavioral Studies, vol. 7, no. 2, pp. 109–115.
27. Miglani S, Kamren A, Darren H., 2015. Voluntary corporate governance structure and financialdistress: Evidence from Australia. Journal of Contemporary Accounting & Economics vol. 11, pp.18–30.
28. Mine Ugurlu, Hakan Aksoy, 2006. “Prediction of corporate financial distress in an emerging market: the case of Turkey”, Cross Cultural Management: An International Journal, Vol. 13, no. 4, pp. 277–295
29. Ngan, S.C., 2013. The impact of politically-connected executives in fraudulent financial reporting : Evidence based on the H. African Journal of Business Management, vol. 7, no. 18, pp. 1875–1884. Retrieved from
30. Platt, H.D., & Platt, M.B., 2002. Predicting corporate financial distress: reflections on choice-basedsample bias. Journal of Economics and Finance, 26(2), 184-199.
31. Robinson, T., Hennievan, G., Henry, E., Broihahn, M., 2009. International Financing StatementAnalysis. Canada: John Wiley & Sons, Inc., Hoboken, New Jersey.
32. S. Munawir, 2007. Analisis Laporan Keuangan, Edisi Empat. Yogyakarta: PT. Liberty.
33. Siregar, R.I., & Fauzie, S., 2012. Analisis Manfaat Rasio Keuangan Dalam Memprediksi FinancialDistress Pada Perbankan (2007-2012). Jurnal Ekonomi Dan Keuangan, vol. 2, no. 12, pp. 716–726.
34. Sjahrial D. (2014). Manajemen Keuangan Lanjutan. Mitra Wacana Gramedia.
35. Skousen, C.J., Smith, K.R., & Wright, C.J., 2009. Detecting and predicting financial statement fraud: the effectiveness of the fraud traingle and SAS No 99. Retrieved from
36. Sofyaningsih, S., & Hardiningsih, P., 2011. Struktur Kepemilikan, Kebijakan Dividen, Kebijakan UtangDan Nilai Perusahaan. Dinamika Keuangan Dan Perbankan, vol. 3, no. 1, pp. 68–87.
37. Thomas Robinson, Hennievan Greuning, Elaine Henry, Michael Broihahn. 2009. InternationalFinancing Statement Analysis. Canada: John Wiley & Sons, Inc., Hoboken, New Jersey.
38. Ugurlu, M., & Aksoy, H., 2006. Prediction of corporate financial distress in an emerging market: thecase of Turkey. Cross Cultural Management: An International Journal, vol. 13 Issue. 4, pp. 277 – 295, retrieved from
39. Ujiyantho, M.A., & Pramuka, B. A., 2007. Mekanisme corporate governance, manajemen laba dankinerja keuangan. Simposium Nasional Akuntansi X, 10.
40. Venkada salam, S., 2016. Financial Distress Situation of Listed Malaysian Shipping Companies from2008 to 2014: Using Altman’s Z-EM Score. International Research Journal of Applied Finance, vol. 7, no. 5, pp. 53-63.
41. Waznah, A., Aima, N., & Mohd, Z., 2015. Earnings Management: An Analysis of OpportunisticBehaviour, Monitoring Mechanism and Financial Distress. Procedia Economics and Finance, vol. 28, (13-14 April), pp. 190–201. Retrieved from
42. Widarjo, W., & Setiawan, D., 2009. Pengaruh Rasio Keuangan Terhadap Kondisi Financial DistressPerusahaan Otomatif. Jurnal Bisnis Dan Akuntansi, vol. 11, no. 2, pp. 107–119.
43. Wardianto, K.B., 2013. Pengujian Pecking Order Theory Pada Non-Bank Financial Institution (NBFIs) Di Indonesia. Administration Journal, vol. 1, no. 1.
45. http://bisnis.