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| Illustration by Ai |
Managerial Ownership Emerges as Key Driver of Financial Statement Fraud in Indonesian Banks
A 2026 study by Annisa Fitriyani, Wiralestari, and Aulia Beatrice Brilliant from Universitas Jambi reveals that managerial ownership is the most significant factor influencing fraudulent financial statements in Indonesian banking. Published in Jurnal Multidisiplin Madani (MUDIMA), the research analyzed banking firms listed on the Indonesia Stock Exchange between 2021 and 2024, highlighting how internal ownership structures can shape financial reporting integrity.
The findings matter as Indonesia’s banking sector plays a central role in economic stability. Fraudulent financial reporting can erode investor confidence, distort market decisions, and weaken financial systems. The study provides new evidence on which governance factors truly signal fraud risk—and which do not.
Why Financial Statement Fraud in Banking Matters
Banks act as financial intermediaries, channeling public funds into economic growth. However, increasing competition and financial pressures—such as rising non-performing loans and market volatility—have created conditions where manipulation of financial statements can occur.
Recent fraud cases in Indonesia, including fictitious loan scandals and large-scale financial misreporting, illustrate how weak governance and internal controls can enable fraud. These cases have heightened regulatory scrutiny and public concern.
The study builds on agency theory, which explains conflicts between company owners and managers, and the Fraud Hexagon Theory, which identifies six drivers of fraud: pressure, opportunity, rationalization, capability, arrogance, and collusion.
How the Study Was Conducted
The researchers used a quantitative approach based on secondary data from annual financial reports of banking companies listed on the Indonesia Stock Exchange.
- Sample: 29 banks
- Observation period: 2021–2024
- Total observations: 116
- Method: Logistic regression analysis
- Fraud detection tool: F-Score model combining accrual quality and financial performance
Fraudulent financial statements were classified as either present or absent using a scoring threshold, allowing the researchers to statistically test which factors increase fraud risk.
Key Findings: What Drives Fraud—and What Doesn’t
The study tested six major factors linked to fraud risk in banking:
1. Managerial Ownership Is the Only Significant Predictor
- Higher managerial share ownership significantly increases the likelihood of fraud
- Managers with larger ownership stakes may feel greater control and power, potentially leading to opportunistic behavior
2. Other Factors Show No Significant Individual Impact
The following variables did not significantly influence fraud when tested individually:
- Financial targets (Return on Assets)
- Independent commissioners
- Auditor changes
- Director changes
- Non-performing loans (NPLs)
3. Combined Effect Still Matters
Although most variables were insignificant individually, all factors together significantly influence fraud risk, suggesting that fraud is multi-dimensional.
4. Fraud Cases Are Relatively Rare but Detectable
- Only a small proportion of banks showed indications of fraudulent reporting
- The model achieved 97.5% overall accuracy, but was less sensitive in detecting actual fraud cases due to limited data instances
What the Findings Mean in Practice
The study challenges common assumptions about corporate governance in banking.
Key Implications
- Ownership structure matters more than oversight mechanisms,Traditional governance tools like independent commissioners or auditor rotation may not be sufficient to prevent fraud.
- High managerial ownership can increase risk,While often seen as aligning interests with shareholders, excessive ownership may instead lead to dominance and reduced accountability.
- Fraud detection requires multi-factor analysis,No single variable—except managerial ownership—can reliably predict fraud on its own.
- Regulatory oversight remains crucial, The relatively low incidence of fraud may reflect strong supervision by regulators and improved governance practices in Indonesia’s banking sector.
Expert Insight from the Researchers
The authors emphasize the importance of ownership structure in fraud detection:
Managerial ownership plays a crucial role in influencing the likelihood of fraudulent financial statements, particularly in banking institutions where decision-making power is concentrated.
They note that ownership can shift from being a governance mechanism to a risk factor when not properly monitored.
Author Profiles
- Annisa Fitriyani – Researcher in accounting and financial fraud, Universitas Jambi
- Wiralestari – Academic specializing in corporate governance and financial reporting, Universitas Jambi
- Aulia Beatrice Brilliant – Lecturer and researcher in financial accounting and risk analysis, Universitas Jambi
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