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Agency theory is a theory that explains the relationship between principal and agent in business. The main concern of this theory lies in how to solve problems that arise from agency relationships because of the inconsistency of objectives or differences in the assessment of a business risk. This problem can arise when the agent is motivated to take an action for his interests which is contrary to what he should have done or expected by the principal. This situation is commonly referred to as moral hazard. The occurrence of moral hazard can be caused by knowledge held by shareholders over others. Intellectual capital can reduce conflict because smart people may not necessarily

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This study aims to see the effect of the CEO Capabilities and CEO Arrogance to fraudulent financial statements indication. The study used a sample of all manufacturing companies from 2017 to 2019. In accordance with the sample selection, there are 162 manufacturing companies that meet the sample criteria. In this study using multiple linear regression test. This study uses secondary data for the 2017-2019 annual report. Based on the results that have been tested, CEO capability as a respected party (CEO Age), CEO capability as the person who knows the most about the company (CEO Tenure) and CEO arrogance as a person who has political connections (CEO Political Connection) have an influence on the indication of fraudulent financial statements. Furthermore, the hypothesis of CEO Capability in Accounting/finance knowledge (CEO Education), CEO arrogance in the form of narcissism (CEO PIC) and CEO arrogance as company founder (Founder CEO) have no influence on indications of fraudulent financial statements.