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Earnings Management and Board Characteristics: Evidence from Malaysia

Norman Mohd. Saleh, and Takiah Mohd. Iskandar, and Mohd. Mohid Rahmat, (2005) Earnings Management and Board Characteristics: Evidence from Malaysia. Jurnal Pengurusan, 24 . pp. 77-103. ISSN 0127-2713

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Official URL: http://pkukmweb.ukm.my/~penerbit/jurnal_pdf/Jp24-04.pdf

Affiliations

Universiti Kebangsaan Malaysia. Faculty of Economics and Business. School of Accounting
Universiti Kebangsaan Malaysia. Faculty of Economics and Business. School of Accounting
Universiti Kebangsaan Malaysia. Faculty of Economics and Business. School of Accounting

Abstract

The Malaysian Code of Corporate Governance was introduced to improve the monitoring function of the board of directors, audit committee and the external audit. This study assesses the effectiveness of some board characteristics to monitor management behavior with respect to their incentives to manage earnings. We found discretionary accruals as a proxy for earnings management is negatively related to management ownership, but positively related to the existence of CEO-Chairman duality, after controlling for size, leverage and performance. The result shows multiple directorships factor is negatively related to earnings management proxy only in firms with negative unmanaged earnings. This implies multiple directorships factor is effective to detect earnings management practices to avoid losses. Examination of the data also shows that the ratio of independent board members is not significantly related to earnings management in firms with duality status.

Kod Tadbir Urus Korporat diperkenalkan di Malaysia untuk meningkatkan keberkesanan fungsi pemantauan lembaga pengarah, jawatankuasa audit dan audit luaran. Kajian ini menilai keberkesanan ciri tertentu lembaga pengarah dalam memantau kelakuan pihak pengurusan berhubung dengan insentif untuk mengurus perolehan. Kajian ini mendapati akruan boleh pilih (yang menjadi proksi kepada pengurusan perolehan) mempunyai hubungan yang negatif dengan pemilikan pengurusan, dan mempunyai hubungan yang positif dengan kewujudan CEO-Pengerusi berdwi-peranan, setelah mengawal faktor-faktor saiz, leveraj dan prestasi. Hasil kajian juga menunjukkan bahawa faktor pengarah berbilang mempunyai hubungan yang negatif dengan proksi pengurusan perolehan tetapi hanya bagi syarikat yang mencatatkan perolehan tidak diurus yang negatif. Keadaan ini menggambarkan faktor pengarah berbilang adalah efektif bagi mengesan amalan pengurusan perolehan yang bertujuan untuk mengelak kerugian. Pemeriksaan ke atas data juga menunjukan nisbah ahli lembaga pengarah bebas tidak mempunyai hubungan dengan pengurusan perolehan dalam firma yang mempunyai CEO-Pengerusi berdwi peranan.

Item Type:Journal
Additional Information:The authors wish to thank The Ministry of Science, Technology and Innovation of Malaysia for financial assistance under the Intensification of Research in Priority Areas (IRPA) scheme. The paper has also benefited from the helpful comments of participants at the School of Accounting, Universiti Kebangsaan Malaysia research seminar series 2004, and the International Conference on Corporate Governance and Reporting 2004.
Keywords:Malaysian Code of Corporate governance
Subjects:H Social Sciences, Economics, Sociology
ID Code:6043

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