The Relationship between Corporate Governance and Earnings Management: The Case of Malaysia
DOI:
https://doi.org/10.37134/ibej.Vol15.2.10.2022Keywords:
Corporate Governance, Earnings Management, Audit Committee CharacteristicsAbstract
We investigate the relationship between corporate governance mechanisms that are audit committee characteristics, board characteristics and earnings management. We used 150 listed firms in Bursa Malaysia as our sample. We analyse our data using descriptive statistics, correlation and regression. Our study found that the size of the board negatively related to earnings management. This suggest that large board are able to provide effective monitoring mechanism to the firm in combating earnings management. Besides, our result also exhibit that the independence of audit committee is also associated with higher earnings management. We conclude that the role of corporate governance mechanisms are important determinants in reducing earnings management in the firms in Malaysia.
Downloads
References
Abbott, L. J., Parker, S., & Peters, G. F. (2002). Audit committee characteristics and financial misstatement: A study of the efficacy of certain blue ribbon committee recommendations. Available at SSRN 319125.
Abd Razak, M. R., & Ali, E. (2021). Structural Relationship Between Pay Administration and Employee’s Commitment: A Case Study in Pos Malaysia Berhad. International Business Education Journal, 14(2), 25-37. https://doi.org/10.37134/ibej.vol14.2.3.2021
Abdul Rahman, U. M., Dowds, J., & Cahan, S. F. (2005). Earnings management practices among Muslim and non-Muslim managers in Malaysia. International Journal of Economics, Management and Accounting, 13(2).
Bishwas, R., & Rapani, N. H. (2022). The Effects of Corporate Governance Attributes on Real Earnings Management of Public Listed Companies in Bangladesh. International Business Education Journal, 15(1), 1-17. https://doi.org/10.37134/ibej.vol15.1.1.2022
Chang, J. C., & Sun, H. L. (2009). Crossed-listed foreign firms' earnings informativeness, earnings management and disclosures of corporate governance information under SOX. The International Journal of Accounting, 44(1), 1-32.
Chen, G., Firth, M., Gao, D. N., & Rui, O. M. (2006). Ownership structure, corporate governance, and fraud: Evidence from China. Journal of Corporate Finance, 12(3), 424-448.
Chtourou, S.M, Bedard, J., & Courteau, L. (2001). Corporate governance and earnings management. Available at SSRN 275053.
Coles, J. L., Daniel, N. D., & Naveen, L. (2008). Boards: Does one size fit all? Journal of Financial Economics, 87(2), 329-356.
Donnelly, R., & Mulcahy, M. (2008). Board structure, ownership, and voluntary disclosure in Ireland. Corporate Governance: An International Review, 16(5), 416-429.
Ganguly, S. S. (2014). Robust regression analysis for non-normal situations under symmetric distributions arising in medical research. Journal of Modern Applied Statistical Methods, 13(1), 446-462. https://doi.org/10.22237/jmasm/1398918480
Hair, J. F., Black, W. C., Babin, B., & Anderson, R. E. (2013). Multivariate Data Analysis, A Global Perspective. Pearson Prentice Hall.
Hassan, L. S., Mohd Saleh, N., & Ibrahim, I. (2020). Board diversity, company’s financial performance and corporate social responsibility information disclosure in Malaysia. International Business Education Journal, 13(1), 23-49. https://doi.org/10.37134/ibej.vol13.1.3.2020
Healy, P. M., & Wahlen, J. M. (1999). A review of the earnings management literature and its implications for standard setting. Accounting Horizons, 13(4), 365-383.
Hribar, P., & Collins, D. W. (2002). Errors in estimating accruals: Implications for empirical research. Journal of Accounting Research, 40(1), 105-134.
Ismail, W.A.W., Dunstan, K. And Zijl, T.V. (2012). Earning Quality and Corporate Governance Following the Implementation of Malaysian Code Of Corporate Governance, Working Paper, Victoria University of Wellington and Bond University.
Jiang, W., Anandarajan, A., (2009). Shareholder Rights, Corporate Governance and Earnings Quality. Managerial Auditing Jounal 24(8), 767.
Kent, P., Routledge, J., & Stewart, J. (2010). Innate and discretionary accruals quality and corporate governance. Accounting & Finance, 50(1), 171-195.
Lara, J. M. G., Osma, B. G., Mora, A., & Scapin, M. (2017). The monitoring role of female directors over accounting quality. Journal of Corporate Finance, 45, 651-668.
Lin, J.W., Li, J.F., Yang, J.S.., 2006. The Effect of audit committee performance on earnings quality. Managerial Auditing Journal, 21(9), 921.
Machuga, S., & Teitel, K. (2007). The effects of the Mexican corporate governance code on quality of earnings and its components. Journal of International Accounting Research, 6(1), 37-55.
Machuga, S., & Teitel, K. (2009). Board of director characteristics and earnings quality surrounding implementation of a corporate governance code in Mexico. Journal of International Accounting, Auditing and Taxation, 18(1), 1-13.
Mendes, C. A., Rodrigues, L. L., & Esteban, L. P. (2012). Evidence of earnings management using accruals as a measure of accounting discretion. Tékhne, 10(1), 3-14.
Patnaik, S. S., & Panda, A. K. (2014). Optimizing current harmonics compensation in three-phase power systems with an Enhanced Bacterial foraging approach. International Journal of Electrical Power & Energy Systems, 61, 386-398.
Rahman, R.A., Ali, F.H.M.(2006). Board, audit committee, culture and earnings management: Malaysian evidence. Managerial Auditing Journal, 21(7), 783.
Ronen, J., & Yaari, V. (2008). Definition of earnings management. In Earnings Management (pp. 25-38). Springer, Boston, MA.
Saleh, N.M., Iskandar, T.M., Rahmat, M.M. (2005). Earnings Management and Board Characteristics: Evidence from Malaysia. Jurnal Pengurusan, 24(4), 77.
Smith, S. R. (2003). Audit Committees: Combined Code Guidance (pp. 3-48). London: Financial Reporting Council.
Usman, M., & Mat, N. (2021). Islamic Work Ethic and Public Sector Innovation: Challenges and Solutions. International Business Education Journal, 14(1), 33-48. https://doi.org/10.37134/ibej.vol14.1.3.2021
Wang, D. (2006). Founding family ownership and earnings quality. Journal of Accounting Research, 44(3), 619-656.
Wang, Y., Wang, F., & Liu, S. (2021). The Influence of Executive Compensation Gap on Earnings Management from the Perspective of Media Supervision: Evidence from China. Discrete Dynamics in Nature and Society, 2021.
Xie, B., Davidson III, W. N., & DaDalt, P. J. (2003). Earnings management and corporate governance: the role of the board and the audit committee. Journal of Corporate Finance, 9(3), 295-316.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2022 Nooraisah Katmon, Noor Hanisah Khabli, Zam Zuriyati Mohamad, Norimah Rambeli @ Ramli, Mohd Norullah Ab. Razak
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
