Financial Fraud in Malaysia's Consumer Products Industry: Evidence on Financial Distress and Corporate Tax Reporting (PaperAsia)

Summary

• The study uses a balanced panel of 71 firms and 781 firm-year observations from 2014 to 2024 for consumer product companies listed on Bursa Malaysia.p.1
• Fraud is measured with the Beneish M-Score, financial distress with the Altman Z-Score and tax reporting with the effective tax rate.p.1
• The Altman Z-Score is significantly and negatively associated with the financial fraud measure, so greater financial distress is linked to higher fraud risk.p.1
• The Beneish M-Score combines eight financial statement indices and is treated as a fraud-risk proxy, not legal proof of fraud.p.4
• The effective tax rate has a positive coefficient of 0.033138 but is statistically insignificant (p = 0.2677), so H2 is not supported.p.5
• The model's adjusted R-squared is 0.997817, partly reflecting firm fixed effects and the lagged fraud variable.p.6

Key insights

1. Financial distress is statistically significant at the 1% level as a risk condition for fraud in this sample.p.5
2. The result does not imply that every distressed firm commits fraud, since distressed firms attract closer scrutiny from creditors, auditors and regulators.p.5
3. Variation in the effective tax rate does not independently explain financial fraud after firm fixed effects and prior fraud classification are considered.p.5
4. Repeated historical red flags warrant risk-based audit procedures, stronger board oversight and continuous monitoring.p.6
5. A broad effective tax rate measure may not capture the forms of tax aggressiveness most closely related to fraud.p.6
6. The findings support Malaysia's National Anti-Corruption Strategy 2024-2028, which emphasises transparency, integrity and accountability.p.7
7. The sample is limited to listed Malaysian consumer product companies, which restricts generalisability to other industries.p.7