Fraud Hexagon and Financial Statement Fraud Risk: The Moderating Effect of Environmental, Social, and Governance

Abstract

Financial statement fraud remains a persistent corporate governance challenge, particularly in energy firms, where complex operations increase exposure to fraudulent reporting. This study examines the effect of fraud hexagon factors: stimulus, capabilities, opportunity, rationalization, ego, and collusion, on fraudulent financial reporting and investigates the moderating role of environmental, social, and governance in energy sector companies listed on the Indonesia Stock Exchange during 2020–2024. Using a quantitative approach, this study analyzes 207 firm-year observations selected through purposive sampling from annual reports, sustainability reports, and financial statements. The findings show that stimulus, capabilities, and opportunity significantly increase fraudulent financial reporting, while rationalization, ego, and collusion have no significant effects. ESG only weakens the influence of opportunity on fraud risk as a pure moderator, without moderating other factors. Descriptive analysis shows that fraudulent firms tend to be smaller, have lower directors’ remuneration, and have weaker ESG performance, suggesting that limited resources, managerial pressure, and poor sustainability practices may increase the likelihood of financial reporting fraud. Additional analysis indicates that fraudulent firms tend to have lower total assets and directors’ remuneration below the sample average. These findings indicate that ESG primarily reduces fraud risk through improved governance and monitoring mechanisms rather than individual factors.