Fraud Studies Using Hexagon Model and Political Connection

Abstract

Purpose: This study aims to analyze financial statement fraud using the hexagon model and political connection as moderator in state-owned companies listed on the Indonesia Stock Exchange.

 Design/Methodology/Approach: This research uses quantitative methods. The hexagon model consists of financial stability, ineffective monitoring, auditor change, director change, arrogance, collusion, and political connections as moderating variables. The population in this study are state-owned companies listed on the Indonesia Stock Exchange. The sample of this research was 110 consisting of all state-owned companies. This research uses secondary data from the annual report from 2017-2021. Data analysis used SEM with smart Partial Least Square structural equation modeling (PLS) version 3.0. This study tested the validity, reliability and tested the hypothesis.

Findings: Financial stability, ineffective monitoring, auditor change, director change, political connections have a positive and significant effect on fraudulence financial reporting. While arrogance has no significant effect on fraudulence financial reporting. Political connections are able to moderate financial stability, auditor change, collusion to fraudulence financial reporting, while political connections are unable to moderate ineffective monitoring, director change, arrogance, to fraudulence financial reporting.

Practical implications: The findings of this study can be used by companies, especially state-owned companies, to detect fraudulence financial statements using the hexagon model and the relationship with political connections that occur in the company. In addition, for those researched or academics can support new knowledge as well as support the theory used in this research.

Original/Value: A significant contribution to knowledge is achieved through testing the influence of the hexagon model and political connections to fraudulence financial statements that occur in state-owned companies listed on the Indonesian stock exchange.