The Hexagon Theory and Fraud Prediction in Financial Statements of Joint Stock Companies listed on Ho Chi Minh Stock Exchange

Abstract

The announcement of a company’s earnings is one of the most important events due to it provides financial stakeholders and other parties a basis to assess the “wealth” of a company. Therefore, it is inevitable that managers can be under pressure from all sides to cover up inaccurate information or deliberately adjust figures on financial statements, causing those statements to be intentionally “distorted” to raise trust and impression of stakeholders. This study aims to identify the motives in Fraud Hexagon Theory that leads to increasing or fighting the fraud risk in enterprises’ financial statements. A panel logistic regression model with fixed effects is helpful for the sample, including 336 non-financial joint stock companies listed on HOSE from 2013 to 2023. The collected data includes primary and secondary data based on FSs, annual reports, and corporate governance reports. In addition, the work uses the F-score to distinguish between fraudulent and non fraudulent FSs. The result confirms two of six motives are significant and increase the likelihood of fraudulent activities in FSs, including pressure from financial stability and CEO’s arrogance. The study contributes significantly by introducing a new measure to identify FSs with signs of fraud and the fraud motives to stakeholders, auditors, and state officials. This measure assists in making safer funding decisions and proposing appropriate regulations to monitor and limit fraud