Fraud and Corporate Governance: A Bibliometric Review

1. Introduction

In recent years, the importance of corporate governance and its relationship with fraudulent activities within organizations has come to the forefront. The significance of corporate governance has witnessed a global rise, particularly in response to major corporate scandals involving Enron and WorldCom. These incidents resulted in considerable financial losses for both investors and stakeholders. These scandals also questioned the effectiveness of corporate governance mechanisms in preventing such fraudulent activity (Halbouni et al., 2016; Pascual Pedreño et al., 2021).

The direction and control of a company are managed through a system of processes, practices, and rules known as corporate governance. To effectively run a company, it is crucial to consider the interests of all parties involved. This includes shareholders, management, directors, customers, suppliers, financiers, government, employees, and the community (Najm et al., 2022). It provides a framework for attaining a company's objectives and encompasses practically every management sphere, from action plans and internal controls to performance measurement and corporate disclosure (Jensen & Meckling, 1976). Good corporate governance promotes accountability and transparency while avoiding massive wealth disparities and chronic corporate underperformance (Adams et al., 2019).

Fraud is wrongful or criminal deception intended to result in financial or personal gain. Obtaining unauthorized benefits often requires intentionally using deceit, misrepresentation, or manipulating information (Dong et al., 2018; Jensen, 2005; Zahra et al., 2005). Fraud is of many types, such as accounting irregularities, insider trading, embezzlement, and bribery. Regarding corporate governance, fraud typically involves unethical actions by management or employees. These actions can cause significant damage to an organization's financial stability and reputation (Dyck et al., 2010; Hail et al., 2018; Moberg, 1997; Montesdeoca et al., 2019).

Preventing fraud is significantly impacted by proper corporate governance. Good corporate governance can minimize the influence of factors contributing to fraud, such as opportunity and rationalization (Rohmatin et al., 2021). It also strengthens the impact of competence on fraud (Zairis,2021). Additionally, corporate governance efforts can lead to increased vigilance and fraud detection as investors learn from their experiences and modify their investment behavior to avoid suspicious firms (Nguyen, 2022). Fraud-experienced investors are likelier to intensify their corporate governance activities and vote against management at other firms in their portfolios (Maravelaki et al., 2021). Furthermore, firms held by more fraud-experienced investors are less likely to receive accounting fraud sanctions in subsequent years (Mengshuang Du, 2021). Corporate governance is vital to prevent fraud, promote transparency, and protect the interests of stakeholders and the public by stopping the spread of misunderstanding.

According to various sources, good corporate governance may contribute to accounting fraud, suggesting that companies with weak governance structures are more vulnerable to fraudulent activities (Aguilera & Desender, 2012; Chen et al., 2006; Grove & Clouse, 2016; Krishnan & Peytcheva, 2019; Wati et al., 2020). Furthermore, evidence suggests that corporate governance plays a crucial role in reducing the risk of financial statement fraud (Jaya & Ilahiyah, 2020). According to Dechow et al. (1996), Kochan (2002), and Kuhn and Ashcraft (2003), firms that have weak corporate governance are more likely to be in fraudulent and deceitful activities. Additionally, companies without a proper audit committee have the highest fraud incidence. This emphasizes the significance of governance structures in ensuring transparency and accountability (Dechow et al., 1996, 2010).