The role of social control in deterring corporate financial statement fraud

Antecedents of financial statement fraud have been studied in the accounting and finance literatures but it still occurs. This study examines and analyzes the role of social control in reducing the likelihood of fraudulent financial statements. This study conducted panel logistic regression with a sample of 134 companies entered in the Kompas100 index from 2021 to 2023. The results showed that social control has a significant effect in reducing the likelihood of financial statement fraud. Social control can create external pressure that encourages corporates to behave more ethically. Corporates tend to balance negative news about them (which means social control is working) against not engaging in greater fraud. When social control is high, the likelihood of financial statement fraud decreases. The statistical results also suggest that corporates experiencing problems in the debt structure tend to modify their financial statements. Finally, the results of this study can be an evaluation material for authorities and governments to optimize the press in controlling corporate compliance to accounting standards and regulations.