Ownership Concentration and Fraud Risk: The Moderating Role of Board Structure – Malaysian Evidence

Abstract

Fraudulent financial statements remain a critical challenge to investor confidence and financial market integrity, particularly in emerging economies such as Malaysia. This study examines the relationship between ownership concentration and fraud risk, while analysing the moderating role of board structure. Fraud risk is proxied using the Altman Z-score, which captures financial distress, a common precursor to earnings manipulation. Drawing on agency theory and network perspectives, this study argues that ownership concentration can strengthen monitoring and reduce fraud risk, but its effectiveness may depend on internal governance design, specifically board structure. Using a balanced panel of 578 firms listed on Bursa Malaysia, comprising 2,890 firm-year observations, the study employs panel least squares regression with cross-section and period fixed effects. The findings show that ownership concentration is positively and significantly associated with the Altman Z-score, suggesting that concentrated ownership reduces fraud risk. Board structure also shows a positive and significant relationship with financial health. However, the interaction between ownership concentration and board structure is negative and significant, indicating that large boards weaken the positive monitoring effect of concentrated ownership. These results suggest that while ownership concentration enhances monitoring, excessively large boards can dilute this benefit. The findings contribute to fraud risk and governance research by highlighting the moderating influence of board structure and providing policy insights for regulators and investors to balance ownership control with board efficiency to strengthen financial reporting integrity.