Corporate Governance and Fraud Prevention: An Empirical Study of Indian Corporations

Abstract

This study examines the relationship between corporate governance mechanisms and corporate fraud among Indian listed firms. Using a panel of non-financial companies listed on Indian stock exchanges from 2012 to 2022, we investigate whether stronger governance structures reduce the likelihood and severity of corporate fraud. Fraud is proxied using observable misconduct outcomes, including regulatory enforcement actions, adverse audit signals, and accounting irregularities. Corporate governance quality is measured using a composite index capturing board structure, audit committee effectiveness, ownership characteristics, and audit quality. Employing fixed-effects regression models and addressing endogeneity through lagged governance measures and propensity score matching, we find that firms with stronger governance exhibit significantly lower fraud risk. Audit committee independence and auditor quality emerge as the most effective deterrents, while high promoter ownership significantly weakens the governance–fraud relationship. Overall, the findings contribute to the emerging-market governance literature and offer important implications for regulators, boards, and investors seeking to strengthen fraud prevention frameworks in environments characterized by concentrated ownership.