This is a preliminary study developed to explore the determinants of capital structure of Shariah-compliant firms listed in Bursa Malaysia. This study is primarily motivated by the issue of the determinants still being inconclusive in the area of capital structure. The study is performed using the static models namely Pool Ordinary Least Square, Fixed Effect and Random Effect Model. Empirical analysis on the determinants reveals that country specific factor which is GDP and sector specific factor which is industry concentration are also significant in influencing the corporate financing decisions in this country along with firm specific factors such as efficiency, bankruptcy risk, profitability, tangibility, liquidity and size of the firm. The findings revealed that results are sensitive to models employed in the study. Nevertheless, the applicability of capital structure theories such as the trade-off theory, agency theory and pecking order theory diverge across sectors in Malaysia. The pecking order theory and agency theory are found to be the dominant theories governing the corporate financing decision in the country as well. It indicates strong evidence of hierarchy practised in firms’ financing decision. The finding on agency theory being dominant justifies the function of short-term debt as a controlling mechanism to mitigate the agency problem arises within firms across sectors.

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Earnings management research has a long and rich history. The agency conflict, incentives, rationalization, opportunity plus having the capability among the managers to manipulate the financial statements lead them to commit fraud. The loopholes in the standards or the deviation from real operational activities promote this situation to prolong. In relation to this issue, this study examines the earnings management behavior among fraud firms in Malaysia. Further, this study examines the relationship between accruals earnings management as a proxy variable for discretionary accruals and real earnings management as the proxy variable for discretionary cash flow. Sample of 57 alleged fraud firms was selected based on the fraudulent financial reporting offences announced in Bursa Malaysia website. The sample data are collected from public firms which committed fraud from 2001 to 2013. This study found a significant negative relationship between accruals earnings management and real earnings management among the fraud firms in Malaysia suggesting that these firms aggressively manage earnings downwards or upwards essentially to avoid regulators scrutiny apart from aiming to achieve personal incentives. The study significantly finds evidence that fraud firms manage earnings on a sequential basis between accruals earnings management and real earnings management prior to fraud year. The findings indicate that firms opt for real earnings management and make full use of its distinguished features of not easily traceable to continue managing earnings immediately subsequent to fraud year. This study may assist regulators, auditors, and policymakers to curb earnings management patterns that have high likelihood of becoming part of fraud antecedent.

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Contribution/Originality: This study contributes to existing literature by investigating the corporate governance (CG) mechanisms that influence firm's risk measured by cost of equity capital. directors which is an important element in the corporate governance. Thus, the introduction and establishment of Malaysian Code of Corporate Governance (MCCG) as well as the Bursa Malaysia Listing Requirement in 2001