Determinants of Fraudulent Financial Reporting among Deposit Money Banks (DMB) in Nigeria: Using the Fraud Diamond Theory

Reuben Osita Nwosu, Joseph Femi Adebisi and Yohanna Dang Dagwom
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Reuben Osita Nwosu: Department of Auditing and Forensic Accounting, College of Public Sector Accounting, ANAN University, Kwall, Plateau State, Nigeria.
Joseph Femi Adebisi: Department of Auditing and Forensic Accounting, College of Public Sector Accounting, ANAN University, Kwall, Plateau State, Nigeria.
Yohanna Dang Dagwom: Department of Public Sector Accounting, College of Public Sector Accounting, ANAN University, Kwall, Plateau State, Nigeria.

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Abstract: This study examines the determinants of fraudulent financial reporting (FFR) among listed deposit money banks (DMBs) in Nigeria using the Fraud Diamond Theory. Panel data covering 12 DMBs from 2012 to 2023 were analysed using binary logistic regression to assess the effects of pressure (cash flow trend), opportunity (related party transactions), rationalisation (economic downturn), and capability (earnings forecast pressure) on the likelihood of financial misreporting. Control variables included return on assets (ROA), inflation, and exchange rate. The results reveal that cash flow trend (CFT) has a statistically significant negative relationship with FFR at the 1% level, suggesting that declining cash flows increase fraud risk. Related party transactions (RPT) and economic downturn (ECD) are both positively and significantly associated with FFR, supporting the opportunity and rationalisation dimensions of fraud. Inflation also shows a significant positive effect, while exchange rate (FXR) exhibits a significant negative relationship, indicating macroeconomic influences. Capability (PEF) and ROA were not statistically significant. The model demonstrates good predictive power with an AUC of 0.8042 and a classification accuracy of 73.5%. The findings underscore the interplay between financial strain, opportunistic practices, and macroeconomic volatility in driving fraudulent reporting in Nigeria's banking sector.

Date: 2025-05-28
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Published in Asian Journal of Economics, Finance and Management , 2025, 7 (1), pp.370-382. ⟨10.56557/ajefm/2025/v7i1280⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05089797

DOI: 10.56557/ajefm/2025/v7i1280

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