Predicting Risk of and Motives behind Fraud in Financial Statements of Jordanian Industrial Firms Using Hexagon Theory

Ahmad Ahed Bader (), Yousef A. Abu Hajar, Sulaiman Raji Sulaiman Weshah and Bisan Khalil Almasri
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Ahmad Ahed Bader: Department of Financial and Administrative Sciences, Aqaba University College, Al-Balqa Applied University, Aqaba 77110, Jordan
Yousef A. Abu Hajar: Department of Financial and Administrative Sciences, Aqaba University College, Al-Balqa Applied University, Aqaba 77110, Jordan
Sulaiman Raji Sulaiman Weshah: Department of Accounting and Accounting Information System, Amman University College for Financial Administrative Sciences, Al-Balqa Applied University, Amman 11831, Jordan
Bisan Khalil Almasri: Accounting Department, Business School, Applied Science Private University, Abu Nussair, Amman 11937, Jordan

JRFM, 2024, vol. 17, issue 3, 1-27

Abstract: This study intends to identify the motives that lead to increasing or fighting the fraud risk in the Financial Statements (FSs) of industrial companies whose shares are traded in regulated and unregulated markets at the Amman Stock Exchange (ASE) based on the Hexagon theory, which divides the motives for fraud into six factors. The study relied on secondary data to collect and measure the study variables by extracting them from the annual reports that were published by those companies on the website of the ASE during the period of 2012–2017. The collected data were analyzed using the logistic regression model on the SPSS program. The results confirmed that the return on assets (ROA), percentage of independent members in audit committees, and tone-related party transactions had a statistically significant relationship with predicted fraudulent FSs, where these three variables belong to pressure, opportunity, and collusion fraud motives, respectively. Thus, it is worth mentioning that this study is distinguished from previous studies that examined the issue of fraud in Jordanian companies by detecting the motives of fraud according to the Fraud Hexagon theory. Moreover, some of the fraud motives were measured using new variables such as a change in inventory, the age of auditing committee’s members, and tone-related party transactions.

Keywords: F-score model; financial statement fraud; fraud hexagon theory; capital market; developing country; corporate governance (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
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