Hexagon Fraud: Detection of Fraudulent Financial Reporting in State-Owned Enterprises Indonesia

Round 1

Reviewer 1 Report

The paper investigated the factors that influence fraudulent financial reporting by using seven variables to describe each component of the fraud hexagon. The idea is very interesting, but it needs to be substantially improved as a way of presenting.

In my opinion the sections Methodology and Results must be rewritten. usually only the mathematical model or formula is presented in the methodology, and the solution is presented in the results.

Regarding the first sentence from Metodology section "The study design is a descriptive study" you have to explain more, it really is a descriptive study? Because something else results from the abstract.

I did not clearly understand the results of the regression? Why didn't you present the correlation matrix between the variables?

I recommend the authors to focus more on policy and practical implications of the results. How can managers and investors use the findings of the study? Also, how the results can be generalized to companies from  other countries, you can discuss based on the literature if there are gaps between companies from different countries.

 

 

Author Response

Dear Reviewer

We thanks for your time and attention to review our article.

Thank you for the review so that our article becomes better. Permission to submit answers from the reviews that have been given.

Thank you for the review and suggestions to make our articles better. We have presented the Hexagon theory factors used in the Detection of Fraudulent Financial Reporting in a coherent and complete manner as well as related to the proxies used to measure them.
The Methodology and Results section should be rewritten. Sorry, our article was too simple before, but now it has been changed according to the reviewer's input, namely the methodology only explains the methodology used. Furthermore, the Results section contains the results of descriptive analysis and the results of hypothesis testing.
Thank you for the review to improve our article. We present a Summary of hypothesis testing results and a correlation matrix between variables containing Coefficient and P-value relationships between variables on all factors in hexagon theory.
Reviewers recommend authors focus more on the policy and practical implications of the results. How managers and investors can use research findings. We have revised it as follows: Consider management as the person in charge and agents in protecting the principal (shareholders). Especially financial stability, external pressures affect Fraudulent Financial Reporting. Management is also tasked with providing information and is expected to know more about the factors that can cause fraud and the impact of fraud on financial statements to reduce errors in making decisions.
For investors, as a tool that is expected to provide information to investors in assessing and analyzing their investments in a company, be more careful and detect the possibility of fraud in the company's financial statements. Especially financial stability, external pressures affect Fraudulent Financial Reporting. So it will reduce risk and be able to consider the suitable investment. Research subjects are limited to State-Owned Enterprises Indonesia. However, the result of this study can be generalized to companies from other countries.

Thanks You

Best Regard

Reviewer 2 Report

1. Usually keywords don't take (over) multiple sequences from the title - I recommend replacing them so that they can reflect the ideas in the article and not just be redundant.
2. I believe that the Jel Clasification should be revised and modified to better express the classification of the article.
3. Literature Review is well done. So is the Methodology section.

4. The article is intended to be solidly constructed, but lacks the practical elements that should complement the theoretical notions. Should be completed

5. The section of “concrete” proposals to be implemented for combating fraud (specific to the respective area) is missing. Should be completed.

Author Response

Dear Reviewers
We thanks for your time and attention to review our article.
Thank you for the review so that our article becomes better. Permission to submit answers from the reviews that have been given.
Thank you for the review and the suggestion of changing the keys so they can reflect the ideas in the article and not just be redundant. We have changed the keywords, namely financial stability; external pressures; ineffective monitoring; arrogance; collusion

The Jel classification should be revised and modified to better express the article classification. Thank you for the improvement, we have changed the JEL Classification to G32, M14, M48. Thus can express the classification of articles better.

The Literature Review is well done. Likewise with the Methodology section. Thank you for your attention and review.
This article is meant to be solidly built, but lacks the practical elements that should complement theoretical ideas. We have revised and explained in the manuscript that the hexagon theory factors can be used to detect fraudulent financial statements, namely financial stability, external pressures, however, additional elements of fraud diamonds such as arrogance, collusion do not affect fraudulent financial reporting.

This study is to identify and detect the factors of financial statement fraud. So it will reduce risk and be able to consider the suitable investment. Research subjects are limited to State-Owned Enterprises Indonesia. However, the result of this study can be generalized to companies from other countries.

Thank you for the review and suggestions to make our articles better.
Best regards

Round 2

Reviewer 1 Report

The paper is improved, but there are still some issues to be resolved.

At the end of the introduction section, the phrase with the structure of the paper must be added.

In section 3.2 table 3 is irrelevant, the selection of the sample in the text was explained.

The methodology section must include the regression equation between the dependent variable M-score and the independent variables, following that in the results section to present in a table the obtained results.

Please delete from abstract the sentence with software used and included it in methodology section.

The results section must be improved. It is necessary to include the correlation matrix, you can consult the papers below:

Feruleva, N. V., & Shtefan, M. A. (2017). Detecting financial statements fraud: the evidence from Russia. Корпоративные финансы, 11(2).

https://www.researchgate.net/publication/328862104_Detecting_Financial_Statements_Fraud_the_Evidence_from_Russia

Ibadin, P. O., & Ehigie, A. H. (2019). Beneish model, corporate governance and financial statements manipulation. Asian Journal of Accounting and Governance, 12.

Bakar, D. B. A. (2021). Financial Information Fraudulence and Financial Distress: Evidence from Singapore. Turkish Journal of Computer and Mathematics Education (TURCOMAT), 12(9), 2732-2746.

https://ejournal.ukm.my/ajac/article/view/23837/10220

It must also be specified whether the data have been tested, for stationarity, multicollinearity or another applicable test.

Since the sample is small you could include a centralized table with Beneish M-score values on each company or include this variable in the descriptive statistics (table 4).

From the answer received I did not clearly understand what the coefficients in table 6 represent. Please do not confuse the correlation coefficients with the regression coefficients.

Please check the English, for example for Standard devices must be replaced with "deviation" .

Author Response

At the end of the introduction section, the phrase with the structure of the paper must be added.
Thanks you, in the introduction we have added the phrase structure of the paper. Furthermore, the rest of this paper is divided into four sections: the literature review is outlined in Section 2. Section 3 presents the methodology, data, describing the variables. Section 4 presents the results and discussion. The conclusion is given in the last part.

In section 3.2 table 3 is irrelevant, the selection of the sample in the text was explained.
We have explained the sampling criteria in section 3.2 of table 3, namely The sampling technique uses a targeted sample to generate a sample. The sampling criteria in this research are companies that are not listed on the IDX in a row for the 2016-2020 period. Furthermore, the data is incomplete for the 2016-2020 period as shown in Table 3.

The methodology section must include the regression equation between the dependent variable M-score and the independent variables, following that in the results section to present in a table the obtained results.
Thanks for the suggestion, we have added the regression equation between the dependent variable and the independent variable and in the results we explain the results obtained.

Please delete from abstract the sentence with software used and included it in the methodology section.
We have removed the sentence with software in the abstract and added it in the methodology section. Thank you.

The results section must be improved. It is necessary to include the correlation matrix, you can consult the papers below:
In the results section, we have added a correlation matrix, namely in table 8. Thank you, we have added insight and knowledge after being given some references to improve our manuscript, so that it is better. thank you very much for helping us.

It must also be specified whether the data have been tested, for stationarity, multicollinearity or another applicable test.
We have tested the data before using logistic regression, including Table 5. Classification Test Results, Table 6. Hosmer and Lemeshow Test and Table 7. Omnibus Tests of Model Coefficients.

Since the sample is small you could include a centralized table with Beneish M-score values ​​on each company or include this variable in the descriptive statistics (table 4).
Thank you for improving our manuscript. however, we are limited in entering the M-Score value of each company. Thank you for the review and attention.
 
From the answer received I did not clearly understand what the coefficients in table 6 represent. Please do not confuse the correlation coefficients with the regression coefficients.
in table 6 we edited it to Table 9. and have added coefficeint to the table. thanks for the review and suggestions.

Please check the English, for example for Standard devices must be replaced with "deviation" .
We have checked our English and we have fixed it. thank you.

Round 3

Reviewer 1 Report

The paper is improved, but please clarify the follow aspects:

1. Type of regression used.

In  abstract is mentioned: "The method used is quantitative, and the analytical method used is multiple linear regression". 

In lines 338-339 are mentioned "In this study, logistic regression analysis was used because the dependent variable was a dummy ..."

2. After lines 342 and 343, please enter a sentence in which to explain the connection of this formula with M-score (from the following formula).

3. Regarding M-score, I thought it would be useful to be include it in descriptive statistics (table 4), to see the average, min and max. The values obtained could be commented in the context of the probability of fraud.

 

Author Response

Dear Reviewer

Thank you for the review and suggestions given to improve our article.
In the abstract we have adjusted to lines 338-339 using logistic regression analysis.

Furthermore, we have included a sentence to explain the relationship between this formula and the M-score (from the following formula), namely "Furthermore, the dependent variable in this study is fraudulent financial reporting using the Beneish M-Score which consists of 8 financial ratio indices,".

In Table 4 we have entered the M-score into descriptive statistics (table 4), to see the mean, standard deviation, min and max and are explained in the next sentence. thank you for the review given. We become more knowledgeable and know how to write good articles. Once again, thank you so much.

Best regard