Risk Management practices and potential fraudulent financial reporting: evidence from Malaysia

Abstract

PurposeThis paper investigates the relationship between risk management practices and potential fraudulent financial reporting in Malaysia by considering recent regulatory reforms of the Malaysian government on risk management practices.Design/methodology/approachThe sample of this study was based on 257 firm-year observations during the 2012–2017 period. This study employed panel-least square regressions with period fixed effects.FindingsThis study found a significant association between risk management activities in the disclosure and potential fraudulent financial reporting. Nevertheless, this study found there is insignificant effect of the risk-management committee in reducing potential of fraudulent financial reporting.Originality/valueThis study is a pioneer research that relates firms’ risk management practices with potential fraudulent financial reporting measured by F-score. Thus, this study provides an insight to regulators on the extent of risk-management practices in deterring potential fraudulent financial reporting which can be used as an input for greater enforcement of risk-management regulations.