Military Background in Public Firms: Does It Increase the Financial Fraud?
DOI:
https://doi.org/10.35591/wahana.v29i1.978Keywords:
Corporate Governance, Financial Fraud, Military BackgroundAbstract
The increasing appointment of military-backgroung individuals in Indonesian public firms has raised concerns regarding corporate governance quality and the risk of financial fraud. Despite prior studies suggesting that military backgrounds may reduce misconduct in developed economies, it remains unclear whether these dynamics hold true in emerging markets with weaker institutional frameworks. This study aims to examine The effect of military background and corporate governance on financial fraud, and also the mediation effect of corporate governance. Using a quantitative correlational design, the study analyzes 406 firm-year observations of non-financial public companies listed on the Indonesia Stock Exchange (IDX) during 2019–2022. Regression analysis and Sobel tests are employed to assess both direct and mediating effects. The findings show that a military background significantly increases the financial fraud and negatively impacts corporate governance quality. However, governance quality does not significantly reduce fraud nor mediate the relationship between military background and financial fraud. These findings suggest that military presence in corporate leadership structurally weakens governance mechanisms and fails to constrain opportunistic behaviors. This study contributes to the emerging literature on corporate governance and fraud by highlighting the unique challenges posed by militarized leadership structures in transitional economies. It offers critical insights for regulators, investors, and policymakers regarding the governance vulnerabilities associated with military influence in corporate settings.
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