Asian Research Journal of Current Science

This study examined the effect of financial fraud on the corporate performance of Deposit Money Banks (DMBs) in Nigeria, emphasizing the moderating role of forensic accounting and the causal relationships between fraud variables and bank performance. Panel data comprising 121 observations were analysed using descriptive statistics, Pearson correlation, fixed and random effects regression models, moderation analysis, and pairwise Granger causality tests. Corporate performance was measured by return on assets “(ROA), while financial fraud was captured through financial statement fraud, tax evasion fraud, and electronic fraud, including forensic accounting interaction terms. Results indicate that financial statement fraud positively and significantly affects reported performance in the absence of forensic accounting, suggesting earnings manipulation, while tax evasion fraud negatively influences performance. Electronic fraud showed no significant direct effect in the regression models; however, Granger causality tests revealed a unidirectional causal relationship from electronic fraud to corporate performance, indicating immediate financial consequences. Incorporating forensic accounting altered these relationships by weakening the artificially positive effect of financial statement fraud and intensifying the adverse impact of tax evasion fraud, thereby improving the model’s explanatory power. Diagnostic tests confirmed the absence of heteroskedasticity and specification errors, affirming model reliability. The study concludes that forensic accounting is crucial in mitigating the distortions caused by financial fraud, enhancing transparency, and sustaining performance in Nigerian DMBs. It recommends institutionalizing forensic accounting units, strengthening internal control systems, and enforcing regulatory oversight to reduce fraud risks and improve sector stability.