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

Abstract

PurposeAims 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/approachThe current study employs the cross‐sectional modified version of Jones, where abnormal working capital accruals are used as proxy for earnings management.FindingsThe 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/valueSince, 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.

The Effects of Corporate Ownership Structure and Board Size on Earnings Management: Evidence from Turkey

“…Existing literature suggested that there is a negative relationship between earnings management and firm size (Klein, 2002;Xie et al, 2003;Rahman & Ali, 2006). This indicates that smaller firms are subject to less monitoring from owner so that managers can engage more in earnings management activities.…”

Board Characteristics and Financial Reporting Quality among Jordanian Listed Companies: Proposing Conceptual Framework

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