The Effect of Fraud Indicators and Financial Reporting Compliance on Earnings Quality and Stock Returns
DOI:
https://doi.org/10.54518/rh.6.2.2026.1106Keywords:
Earnings Quality, Financial Reporting Compliance, Fraud Indicators, Stock ReturnsAbstract
This study addresses the increasing importance of financial reporting quality in Islamic capital markets. This study examines the effect of the depreciation index, sales general and administrative expenses index, total accruals to total assets index, leverage index, and financial reporting compliance on earnings quality and its impact on stock returns in primary consumer goods companies listed on the Indonesian Sharia Stock Index during 2020–2024. A quantitative causal approach using SEM-PLS with SmartPLS 4 was applied to 34 companies (170 observations) selected through purposive sampling. Earnings quality was measured by operating cash flow to earnings before interest and taxes, stock return by annual price change, fraud variables by Beneish indicators, and reporting compliance by a timeliness-based dummy variable. The results indicate that fraud-related indices do not significantly affect earnings quality or stock returns. However, financial reporting compliance positively affects earnings quality and stock returns, and earnings quality significantly improves stock returns. This study contributes to the literature on Islamic capital market research by providing empirical evidence on the role of financial reporting compliance and earnings quality in explaining stock return behavior.
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