earnings management – Jurnal Pengurusan

The Audit Committees, Internal Audit and External Audit Quality Effects on Earnings Management: An Analysis of Malaysian Government-Linked Companies

asriwn — Tue, 31 Jan 2023 07:45:46 +0000

The role of audit governance mechanisms as part of the corporate governance architecture has been promoted to ensure the integrity of the financial reporting process. In order to get insights on their effectiveness, this study investigates the effects of the audit governance mechanism, specifically audit committee, internal audit function and external audit quality on earnings management in Malaysian government-linked companies. Using a cross-sectional variation of the modified Jones Model (1995) to estimate discretionary accruals, this study examined 38 GLCs from 2009–2018, which consisted of 340 firm-year pair observations. Panel data regression analysis was carried out using the generalised least square method to analyse the effect of audit governance mechanisms on earnings management. The findings suggest that lower likelihood of earnings management is associated with the internal audit function. Further analysis on the proxy of internal audit measures suggests that in-house internal audit function is negatively associated with earnings management. This research would provide insights for regulators and management to strengthen in-house internal audit function in order to mitigate earnings management in Malaysian government-linked companies.

Determinants of Fraudulent Financial Reporting: Evidence from Malaysia

syazwinaramjan — Sat, 08 Oct 2022 16:21:55 +0000

This study examines two issues relating to fraudulent financial reporting in Malaysia. The first issue examines factors involved with fraudulent financial reporting practices; i.e. predisposition (i.e. related party transactions, history of prior violations, founders on board), motive (i.e. economic factor, ownership factor, political factor) and opportunity (i.e. poor corporate governance). Then, the second issue looks into the relationship between earnings management and the occurrences of fraudulent financial reporting. The study uses a matched sample of 53 firms that were convicted of issuing fraudulent financial statements during the period from 1996 to 2007. Our results show that firms with fewer related party transactions, higher number of prior violations, and higher proportion of founders on board are more likely to “tip” over the edge into fraudulent financial reporting. We also find that the corporate environment most likely to lead to fraudulent financial reporting is characterised by accounting practices that are already “pushing the envelope” on earnings management. Furthermore, we find that firms are embroiled in fraudulent financial reporting when non-family and non-foreigners own the company, and when the level of financial distress is high. As expected, our results also show that firms involved in fraudulent financial reporting have significantly poor corporate governance structures whereby the audit quality is lower and outside directors seem overcommitted. However, we find no evidence that firm’s political connection factor or the level of board independence play a significant role in the potential for fraudulent financial reporting.

Factors Associated with Financial Restatements: Evidence from Malaysia

syafiqahazieati — Sat, 08 Oct 2022 10:16:24 +0000

This study examines seven factors associated with financial restatements in Malaysian publicly listed companies (PLCs). We hypothesize that two factors proxy for management rationalization, two for management motives and three for the opportunity to predict financial restatements. Our sample consists of 85 restatement firms and 85 no-restatement firms, listed on the Bursa Malaysia and have a complete set of data from 2005-2011. The objective of this study is to examine how rationalization, motive and weak governance lead to financial restatements in emerging economies, like Malaysia. With regard to rationalization, we find that founders are negatively and significantly associated with financial restatements while related party transactions (RPTs) are positively and significantly associated. Additionally, we find evidence that opportunity for restatement proxied by audit quality is negatively and significantly associated with financial restatements.

Pertukaran Ketua Pegawai Eksekutif/Pengarah Urusan dan Pengurusan Perolehan

Nazira Adnan — Sat, 08 Oct 2022 07:40:14 +0000

Top management (Chief Executive Officer/Managing Director) is among the most influential individuals in determining the performance and continuity of the company’s operations. Therefore, the CEO/MD turnover is considered as an important event that may affects the company. Prior studies examined the relationship between the CEO/MD turnover with (i) the share price; (ii) the company’s financial performance; and (iii) earnings management. However, studies in Malaysia were focusing the effect of turnover on company’s financial performance and share price. Accordingly, this study reduces the gap by examining the association between CEO/MD turnover and earnings management. The sample of the study comprises 98 public listed companies which experienced the CEO/MD turnover between 2009 and 2014. Findings from this study indicate that the incoming CEO/MD has a tendency to manage earnings negatively to reduce earnings during the turnover year. Subsequently they manage earnings upward a year after the turnover. These findings are in line with past studies. However, finding also indicates that the new CEO/MD recruited internally is more likely to manage earnings upward compared to CEO/MD recruited from outside the organizations. The findings of this study may useful in the strategic decision-making involving the corporate management of public listed companies, particularly when the decision of the CEO/MD turnover is considered. It is relevant for investors and prospective investors in helping them make investment decisions in companies that have or will experience CEO/MD turnover.

Corporate Social Responsibility, Earnings Management and Industry Type: Does CSR Reinforce Entrenchment Strategy?

khairul23 — Fri, 07 Oct 2022 01:54:59 +0000

Managers could opportunistically misuse corporate social responsibility (CSR) to obfuscate earnings management (EM) by reporting more CSR activities that eventually accomplished stakeholders’ advocacy as their demands on CSR are satisfied. Likewise, sensitive industries have a higher commitment to CSR to appease their stakeholders’ adverse reactions to the nature of their business. This study examines the relationship between EM and sensitive industries on CSR (proxied by the quality of CSR disclosure) and the moderating role of sensitive industries in the relationship between EM and CSR. Employing multiple regression analysis on Malaysian public listed companies for the year 2016, this study finds an insignificant association between EM and CSR, a positive association between sensitive industries companies and CSR and sensitive industries moderate the relationship between EM and CSR. This study offers practical implications for companies to strengthen their corporate governance mechanisms and for investors to cautiously evaluate the companies’ ethics.