The Influence of the Fraud Hexagon Theory on Fraudulent Financial Reporting in the Indonesian Banking

Abstract

Fraudulent reporting is a form of fraud that inflicts substantial financial losses and diminishes the trust of investors and stakeholders. The banking sector is highly vulnerable to such practices due to its operational characteristics and transaction complexity. This study aims to empirically analyze the influence of the Fraud Hexagon elements namely pressure, opportunity, rationalization, capability, arrogance, and collusionon fraudulent financial reporting in banking sector companies listed on the Indonesia Stock Exchange (IDX) for the 2022–2024 period.

This study uses a quantitative research approach. The population consists of all banking companies listed on the IDX during the 2022–2024 period. By using the purposive sampling method based on specific criteria, 43 banks were selected, resulting in a total of 129 observations over the three-year period. Financial statement fraud, as the dependent variable, was measured using the Beneish M-Score formula. The collected data were then analyzed using multiple linear regression analysis with the help of SPSS software.

The results of the hypothesis testing show that the variables of pressure, opportunity, capability, and collusion have a significant positive effect on financial statement fraud. This means that higher levels of these four factors will increase the risk of fraud. On the other hand, the variables of rationalization and arrogance have a significant negative effect on financial statement fraud. Simultaneously (together), the Fraud Hexagon model is proven to be valid, accurate, and significant in detecting and predicting financial statement fraud within the banking industry.