Corporate governance, board ethnicity and financial statement fraud: evidence from Malaysia

Purpose This study aims to examine the relationship between the presence of a Malay director on the board and financial statement fraud in Malaysia. Further, the authors investigate whether financial statement fraud firms improve their governance mechanisms compared to non-fraud firms subsequent to the fraud year. Design/methodology/approach The authors use hand-collected data comprising 76 financial statement fraud and 76 non-fraud firms over a period of eight years from 2001 to 2008. Findings Using a univariate and logistic regression model, the results demonstrate a significant positive relationship between the proportion of Malay directors on the board and the financial statement fraud. The authors also find that fraud firms significantly increase the proportion of independent directors on their boards, increase the frequency of board and audit committee meetings and reduce duality subsequent to the detection of financial statement fraud compared to the non-fraud firms. Originality/value The findings of the study are useful to policy-makers, regulators, firms and investors.