Corporate governance and earnings management in Malaysian government linked companies

Abstract

As the major shareholder, Malaysian Government in 2004 has embarked on the Government linked Companies (GLCs) transformation policy program that mainly emphasizes on enhancing the corporate governance mechanisms of the State owned Enterprises (SOEs) in order to enhance effectiveness of the board. The paper aims to examine the impact of corporate governance mechanisms as embedded in the transformation program on the practice of earnings management. In particular, the study uses data for two periods of time (pre and post transformation), and examine whether the period of post transformation policy has experienced any improvement of board monitoring role in curbing earnings management activities. The main findings show that there is an increase of earnings management activities in post transformation period. Further, the findings revealed that all corporate governance mechanisms have little impact to curb earnings management activities except for board meetings and leadership structure in the post transformation period. The board meetings and separate role of two top positions in the companies were shown to have negative impact on earnings management post transformation policy and that relationship do not hold for the period pre transformation policy. Although the study has shown positive preliminary impact of tightening corporate governance in GLCs, scope to expand the research was also discussed.

Directors’ Independence, Internal Audit Function, Ownership Concentration and Earnings Quality in Malaysia

“…Kamardin and Haron (2011) found that independent directors are not significantly related to the monitoring roles of board of directors. Abdullah and Nasir (2004) ;Mohamad, et al (2012) and Buniamin, et al (2012) showed no influence of independent directors on a firm's earnings quality. Abdullah (2006) revealed that non-executive directors are effective during the financial crisis because investors expect firms to produce financial reports in a timely manner.…”

“…The model used to achieve these objectives is as follows: Table 1 provides a summary of measurements of the study's variables. Percentage of total number of independent non-executive members divided by the total number of board members (Abdul Rahman & Ali, 2006;Mohamad et al, 2012). ACIND…”

“…Percentage of total number of independent non-executive members divided by the total number of AC members (Abdul Rahman & Ali, 2006;Mohamad et al, 2012).…”

Risk Management and Value Creation: Empirical Findings from Government Linked Companies in Malaysia

“…However, past studies still show that GLCs is lacking of value creation compared to non-GLCs (Entebang, 2010;Mohamad & Said, 2011;Lau & Tong, 2008;Feng et al, 2004;Razak et al, 2011). Muslim et al (2012) state that GLCs have suffered from recurring poor firm performances due to the lack of value creation in their organization, which has made them come under the government's scrutiny. Razak et al (2011) find that non-GLCs' performances are better than GLCs in terms of their corporate governance and other forms of specific characteristics, which makes them create more value than GLCs.…”

Risk Management and Value Creation: Empirical Findings from Government Linked Companies in Malaysia

“…Muslim et al (2012) state that GLCs have suffered from recurring poor firm performances due to the lack of value creation in their organization, which has made them come under the government's scrutiny. Razak et al (2011) find that non-GLCs' performances are better than GLCs in terms of their corporate governance and other forms of specific characteristics, which makes them create more value than GLCs.…”