Financial Distress, Corporate Governance, and Fraudulent Reporting in Indonesian Manufacturing Firms

The increasing risk of fraudulent financial reporting in manufacturing companies in Indonesia, which leads to a decline in the credibility of financial statements, serves as the background of this study. This research aims to analyze the effect of financial distress and corporate governance on fraudulent financial reporting, with firm size, return on assets (ROA), and leverage as control variables. This study employs a causal associative design with a quantitative approach on manufacturing companies listed on the Indonesia Stock Exchange during the 2020–2024 period using purposive sampling. Data were obtained from financial statement documentation and analyzed using classical assumption tests, multiple linear regression, as well as t-tests and F-tests with the assistance of SPSS. The results show that financial distress has a positive and significant effect on fraudulent financial reporting, while corporate governance has a negative and significant effect on fraudulent financial reporting. This indicates that higher financial distress increases the likelihood of fraudulent financial reporting. However, corporate governance strengthens monitoring mechanisms, thereby reducing or preventing fraudulent financial reporting, even in companies experiencing financial pressure. Thus, financial conditions and corporate governance mechanisms play an important role in influencing fraudulent financial reporting practices. Keywords: Corporate governance, financial distress, firm size, fraudulent reporting, leverage, return on assets