Relationship between Earning Multiples, Corporate Governance and Earnings Management Practices: An Empirical View with a Mediation Analysis

Abstract

This paper investigated the effect of corporate governance in improving the earnings multiple and reducing the discretionary accruals. This study developed four econometrics models. Random effect model employed for examining the first three econometric models, while for the fourth econometric model study used Andrew F. Hayes mediation process. Results suggest that BOD size, BOD meetings and audit committee size has a significant positive impact on earnings multiples, while earnings multiples have a negative impact on dictionary accrual. Moreover, BOD size and audit committee size has a significant negative impact on dictionary accrual, whereas BOD meetings and employee ownership has a significant positive impact on dictionary accrual. The results further revealed the novel link that earnings multiples partially mediate the relationship between corporate governance variables and dictionary accrual. The new findings provide important insights for all the stakeholders like government, practitioners, academia, researchers, banks, Bursa Malaysia, security commission and public listed companies.

The Adoption of Good Corporate Governance Principles Heighten Momentum on Employee Commitment

“…Thus, having a sound corporate governance is expected to restore and enhance trust in business. In a similar vein, [35] provided that the primary aim of corporate governance is to ensure the stakeholders are being protected from the unethical behaviour of company, such as frauds, misrepresentation, and manipulation of accounts. A robust corporate governance in the company is therefore able to gain the trust of stakeholders [36].…”