The Influence of Corporate Governance Mechanisms on Fraud Probability: Evidence from Russian Companies

Oksana  Soboleva; Elena Makeeva; Gayane Aslanyan

doi:10.17323/j.jcfr.2073-0438.18.1.2024.49-61

Oksana Soboleva HSE University, Moscow, Russia https://orcid.org/0000-0002-1363-9597
Elena Makeeva HSE University, Moscow, Russia https://orcid.org/0000-0002-5821-4496
Gayane Aslanyan Yandex Technologies, Moscow, Russia https://orcid.org/0009-0004-3336-5556

DOI: https://doi.org/10.17323/j.jcfr.2073-0438.18.1.2024.49-61

Keywords: board of directors, corporate governance, audit committee, nomination and remuneration committee, corporate fraud

Abstract

This study examines the impact of corporate governance mechanisms on the probability of corporate fraud occurrence. We evaluate the board size, the degree of independence, and the frequency of meetings of the board and its committees. We also attempt to analyse the board’s gender diversity, but since boards are not gender-diverse in Russia, the significance of this variable cannot be tested. Our empirical study is based on 160 observations of MOEX-listed Russian companies, among which fraudulent behaviour has been revealed in 32 companies over a 5-year period from 2014 to 2018. The relationship between the probability of fraud occurrence and corporate governance was investigated employing a logit model. The data was collected from firms’ annual reports and Thomson Reuters Eikon. Data on fraud cases is based on the evidence from the press (including the leading news sources and specialised websites). We detected a significant negative relationship between nomination and remuneration committee chairmen’s independence, the share of independent directors, the independence of board and audit committee chairmen and the likelihood of fraud. We also discovered the insignificant influence of board and its committees’ size and their meetings’ frequency on fraud probability. This paper contributes to the academic research on the relationship between corporate governance mechanisms and probability of fraud occurrence, emphasizing the special role of the establishment of nomination and remuneration committee chairman independence in Russian companies.

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