Effect of Fraud Hexagon Theory on Corporate Distress Among Listed Non-Financial Companies in Nigeria

Abstract

This study investigates the impact of the Fraud Hexagon Theory on corporate distress among listed non-financial companies in Nigeria. Corporate distress is marked by declining financial performance, increased debt, liquidity issues, and challenges in meeting obligations. Using a cross-sectional design, the study collected data from six non-financial companies in Nigeria's Federal Capital Territory (FCT) through a questionnaire distributed to a sample of 200 personnel. A total of 190 questionnaires were returned, resulting in a 95% response rate. Participants included managers, accountants, auditors, and administrative officers. Data were analyzed with descriptive statistics and Logistic Regression using SPSS Version 23. The study confirmed the validity of the results through a pilot survey and ensured reliability with Cronbach’s Alpha. The findings reveal that financial pressure, employee capability, opportunities from weak internal control, and executive arrogance all significantly and positively affect corporate distress. Based on these results, several recommendations are made. Financial Planning and Risk Management. Companies should enhance financial planning and risk management to mitigate the negative effects of financial pressure. This involves maintaining liquidity reserves, diversifying funding sources, and implementing cost-control measures. Aligning Employee Capability.  Firms should align employee capabilities with organizational goals through training, performance management, and a collaborative culture to counteract the negative impact of high capability on corporate distress. Strengthening Internal Controls. To reduce opportunities for fraud and errors, companies should strengthen internal control systems, conduct regular audits, and promote accountability and transparency. Managing Executive Arrogance.  Organizations should implement governance practices to address executive arrogance. This includes establishing independent boards, fostering a culture of humility, and encouraging feedback and accountability at the executive level. These measures aim to enhance corporate resilience, improve decision-making, and reduce the likelihood of corporate distress.