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Board, audit committee, culture and earnings management: Malaysian evidence

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  • Rashidah Abdul Rahman
  • Fairuzana Haneem Mohamed Ali

Abstract

Purpose - Aims to investigate the extent of the effectiveness of monitoring functions of board of directors, audit committee and concentrated ownership in reducing earnings management among 97 firms listed on the Main Board of Bursa Malaysia over the period 2002‐2003. Design/methodology/approach - The current study employs the cross‐sectional modified version of Jones, where abnormal working capital accruals are used as proxy for earnings management. Findings - The study reveals that earnings management is positively related to the size of the board of directors. This supports the view that larger boards appear to be ineffective in their oversight duties relative to smaller boards. A possible explanation for the insignificant relationship between other corporate governance mechanisms (independence of board and audit committee) and earnings management is that the board of directors is seen as ineffective in discharging their monitoring duties due to management dominance over board matters. The apparent reason for this phenomenon is attributed to the board of directors' relative lack of knowledge in company's affairs. The study also found that ethnicity (race) has no effect in mitigating earnings management, possibly due to the more individualistic behaviour of the Bumiputra directors. The modernisation of Malaysia and also the increase in Bumiputra ownership of national wealth may have caused the Malays to be more individualistic, similar to their Chinese counterpart. Originality/value - Since, there are relatively few studies conducted in this area specifically among Malaysian firms, this study will broaden the scope by providing empirical evidence of the relationship between various corporate governance characteristics, cultural factors and earnings management.

Suggested Citation

  • Rashidah Abdul Rahman & Fairuzana Haneem Mohamed Ali, 2006. "Board, audit committee, culture and earnings management: Malaysian evidence," Managerial Auditing Journal, Emerald Group Publishing Limited, vol. 21(7), pages 783-804, August.
    • Handle: RePEc:eme:majpps:02686900610680549
    DOI: 10.1108/02686900610680549
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    Citations

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    Cited by:

    1. Patrick Velte, 2009. "Die Corporate Governance-Berichterstattung des Aufsichtsrats — Eine empirische Untersuchung im deutschen Prime Standard zum Einfluss auf die Unternehmensperformance," Schmalenbach Journal of Business Research, Springer, vol. 61(7), pages 702-737, November.
    2. Nguyen, Quynh & Kim, Maria H. & Ali, Searat, 2024. "Corporate governance and earnings management: Evidence from Vietnamese listed firms," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 775-801.
    3. Md Helal Uddin*, 2024. "CEO Compensation and Earnings Management-The Moderating Role of COVID-19 Pandemic: Evidence from Bangladesh," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 8(1), pages 1605-1622, January.
    4. Pham Thi Ngoc Bich & Nguyen Dinh Hoang Uyen, 2019. "Corporate governance and firm performance: Evidence from Vietnamese listed companies," HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE - ECONOMICS AND BUSINESS ADMINISTRATION, HO CHI MINH CITY OPEN UNIVERSITY JOURNAL OF SCIENCE, HO CHI MINH CITY OPEN UNIVERSITY, vol. 9(2), pages 74-93.
    5. Indah Fajarini Sri Wahyuningrum & Amin Chegenizadeh & Natasya Ghinna Humaira & Mochamad Arief Budihardjo & Hamid Nikraz, 2023. "Corporate Governance Research in Asian Countries: A Bibliometric and Content Analysis (2001–2021)," Sustainability, MDPI, vol. 15(8), pages 1-20, April.
    6. Dhouha Bouaziz, 2024. "Does the CEO's Entrenchment Affect the Financial Communication Quality? Empirical Evidence from France," Journal of Accounting and Management Information Systems, Faculty of Accounting and Management Information Systems, The Bucharest University of Economic Studies, vol. 23(1), pages 107-133, January.
    7. Bushra Komal & Bilal & Ernest Ezeani & Asim Shahzad & Muhammad Usman & Juncheng Sun, 2023. "Age diversity of audit committee financial experts, ownership structure and earnings management: Evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2664-2682, July.
    8. Temitope Esther OYENEYE & Mathew Idowu ABIMBOYE & Foluke Rachael ODUWOLE & Uwalomwa UWUIGBE, 2023. "Ifrs Adoption And Earnings Management Practices: Evidence From Nigerian Listed Consumer Goods Companies," Business & Management Compass, University of Economics Varna, issue 4, pages 286-297.
    9. Hella Dellai, 2023. "Does Internal Audit Quality Improve Firm Performance? The Moderating Effect of Chief Audit Executive Gender," Information Management and Business Review, AMH International, vol. 15(2), pages 19-28.
    10. Ahmad Yuosef Alodat & Zalailah Salleh & Hafiza Aishah Hashim & Farizah Sulong, 2021. "Corporate governance and firm performance: empirical evidence from Jordan," Journal of Financial Reporting and Accounting, Emerald Group Publishing Limited, vol. 20(5), pages 866-896, August.
    11. XiaoJiao Li & Ei Thuzar Than & Rizwan Ahmed & Maria Ishaque & Toan Luu Duc Huynh, 2023. "Gender diversity of boards and executives on real earnings management in the bull or bear period: Empirical evidence from China," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2753-2771, July.
    12. Horsfall Ekenta Saturday & Professor Joshua Okpanachi & Samuel Gambo Joshua PhD, 2023. "Audit Committee and Financial Reporting Quality of Listed Consumer Goods Firms in Nigeria: Moderating Role of Managerial Shareholdings," International Journal of Research and Scientific Innovation, International Journal of Research and Scientific Innovation (IJRSI), vol. 10(9), pages 303-313, September.
    13. Mohd Anas & Ishfaq Gulzar & Mosab I. Tabash & Gayas Ahmad & Wasi Yazdani & Md. Firoz Alam, 2023. "Investigating the Nexus between Corporate Governance and Firm Performance in India: Evidence from COVID-19," JRFM, MDPI, vol. 16(7), pages 1-18, June.
    14. Mauro Romano & Antonio Netti & Antonio Corvino & Marika Intenza, 2024. "Environmental innovation in healthcare industry: The moderating role of women on board in cost of debt," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 31(3), pages 1921-1933, May.
    15. Ali Meftah Gerged & Khaldoon Albitar & Lara Al‐Haddad, 2023. "Corporate environmental disclosure and earnings management—The moderating role of corporate governance structures," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(3), pages 2789-2810, July.
    16. Leviticus Mensah & Murad Abdurahman Bein, 2023. "Sound Corporate Governance and Financial Performance: Is There a Link? Evidence from Manufacturing Companies in South Africa, Nigeria, and Ghana," Sustainability, MDPI, vol. 15(12), pages 1-24, June.

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