Corporate governance and fraud detection: A study from Borsa Istanbul

Governments give high priority to corporate governance principles after important business scandals. Since the ultimate goal is to enable sustainable life span for the corporations, new regulations and sanctions has been introduced about transparency, and accountability all over the world. The basic corporate governance principles are applied for establishing more reliable financial reportings of firms. In this study, the relationship between corporate governance practices and fraud risk is investigated. There are some studies conducted in literature that investigating fraudulent financial statements, and detection models are tried to be constructed. They are generally based on financial indicators. The aim of this study is to combine financial data with non-financial variables about corporate governance applications, and to construct a fraud detection model via measuring the effectiveness of corporate governance on fraud risk. The hypotheses have been created based on assumptions and tested with the logistics regression. 134 companies listed in Borsa Istanbul have been studied via benefiting their financial statements published between 2010 and 2014, and their corporate governance applications announced. Findings show that the new regulations about corporate governance principles and their applications in Turkey have not made the expected effect on fraud risk yet. On the other hand, profitability and indebt positions of companies have an impact on the risk of preparing fraudulent financial statements, and give clues about the misstatements, consistently with literature.