The Impact of Political Factors on Financial Statement Fraud

Abstract

Objective: The purpose of this research is to examine the impact of political factors on financial statement fraud in companies listed on the Iranian stock market.   Methodology: This research is applied in terms of its objective and uses a mixed exploratory (qualitative-quantitative) data approach. The statistical population for the qualitative part includes document analysis, literature review, and interviews using the Delphi method. The sample for the qualitative part was selected non-randomly and purposefully from a community of financial, economic, and academic experts. The statistical population for the quantitative part comprises all university professors and economic and financial managers in the country during the year 2023. Sampling was performed using multi-stage cluster sampling, with a sample size of 210 individuals determined through structural equation modeling. The research objectives were analyzed using a questionnaire and structural equation modeling in SmartPLS software.   Findings: The results showed that the political factors are composed of two components: 1) Individual factors, including political orientation and major shareholders, and 2) Organizational factors, which in this study include political communications, retirement of provincial officials, political stability, economic policy, political changes, and government supervision. Fraud consists of two components: 1) Internal factors, including corporate governance, financial forecasting goals, active personality traits, operational characteristics, liquidity, financial stability, external pressure expectations, declining product industry customers, and industry decline, and 2) External factors, including decreased industry profit margins due to external pressures and political conditions, rapid technological changes, monopolistic conditions in suppliers and wholesalers of the industry, the need for capital increase by management, increased use of estimation bases that are allowed according to standards for a specific industry, failure to apply a reasonable basis in accounting estimates by management, the necessity for investors to compare the company with similar companies, and the lack of timely and appropriate documentation for transactions. Additionally, the results indicated that political factors have a significant impact on financial fraud in companies listed on the Iranian stock market.   Conclusion: The research results showed that political factors have a significant impact on financial fraud in Iranian stock market companies.