The Effect of Fraudulent Financial Reporting on Stakeholder Confidence in Nigerian SMEs: A Case Study of SMEs in Port Harcourt
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Background of the Study
Fraudulent financial reporting undermines the credibility of businesses, leading to a loss of stakeholder confidence and negatively affecting long-term sustainability. SMEs, which contribute significantly to Nigeria's economic development, are not immune to financial fraud. In Port Harcourt, the prevalence of fraudulent reporting practices poses challenges to investor trust, supplier relationships, and customer loyalty (Nwachukwu & Eke, 2024).
While SMEs are pivotal to economic growth, their susceptibility to poor governance and unethical practices can erode stakeholder confidence, ultimately leading to reputational damage and financial instability. Addressing the causes and consequences of fraudulent reporting is crucial to strengthening stakeholder relationships and ensuring business continuity.
Statement of the Problem
Fraudulent financial reporting is a growing concern among SMEs in Port Harcourt, leading to diminished stakeholder trust and adverse effects on financial performance. Stakeholders often perceive SMEs as high-risk entities due to the lack of transparency and accountability in their financial practices. This mistrust hampers access to capital, strategic partnerships, and market opportunities (Adebayo & Okoro, 2023).
Despite existing regulations, enforcement mechanisms remain weak, allowing fraudulent activities to persist. This study seeks to explore the relationship between fraudulent financial reporting and stakeholder confidence, emphasizing the need for robust governance and ethical accounting practices.
Objectives of the Study
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To assess the prevalence of fraudulent financial reporting among SMEs in Port Harcourt.
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To evaluate the impact of fraudulent financial reporting on stakeholder confidence.
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To propose strategies for mitigating fraudulent financial reporting to enhance stakeholder trust.
Research Questions
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What is the prevalence of fraudulent financial reporting among SMEs in Port Harcourt?
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How does fraudulent financial reporting impact stakeholder confidence?
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What strategies can SMEs adopt to mitigate fraudulent financial reporting?
Research Hypotheses
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Fraudulent financial reporting is not significantly prevalent among SMEs in Port Harcourt.
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Fraudulent financial reporting does not significantly affect stakeholder confidence.
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Mitigating strategies do not significantly enhance stakeholder trust.
Scope and Limitations of the Study
The study focuses on SMEs in Port Harcourt, examining the relationship between fraudulent reporting and stakeholder confidence. Limitations include potential biases in self-reported data and challenges in accessing accurate financial records.
Definitions of Terms
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Fraudulent Financial Reporting: The intentional manipulation of financial statements to misrepresent a company's financial position.
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Stakeholder Confidence: The level of trust and reliability stakeholders place in a business.
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SMEs: Small and Medium Enterprises with limited resources and operational scale.
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