Financial fraud in Malaysia's consumer products industry: Evidence on financial distress and corporate tax reporting

Financial fraud remains a persistent threat to reporting credibility, investor confidence, and corporate accountability in emerging markets. This study examines whether financial distress and corporate tax reporting are associated with the level of financial fraud among consumer product companies listed on Bursa Malaysia. The study addresses the limited sector-specific evidence on how financial pressure and tax-reporting discretion operate within the Malaysian consumer products industry. Using a balanced panel of 71 firms and 781 firm-year observations from 2014 to 2024, the study measures financial fraud with the Beneish M-Score, financial distress with the Altman Z-Score, and corporate tax reporting with the effective tax rate. Firm fixed-effects regression is employed after the Hausman test indicates that fixed effects are preferable to random effects, while a one-period lagged fraud classification is included to capture persistence in reporting behaviour. The results show that the Altman Z-Score is significantly and negatively associated with the financial fraud measure, implying that greater financial distress, represented by a lower Z-Score, is associated with a higher level of fraud risk. Corporate tax reporting is not statistically significant, whereas the lagged fraud indicator is strongly positive, indicating substantial persistence in fraud-related reporting patterns. The findings extend the Fraud Diamond perspective by showing that pressure is empirically relevant in this setting, while the opportunity represented by tax-reporting discretion appears more context-dependent, and they underscore the importance of early detection, continuous monitoring, and strong governance in supporting transparent and accountable institutions.