Effect of audit committee independence, board ethnicity and family ownership on earnings management in Malaysia

Purpose The purpose of this paper is to investigate the effect of audit committee independence, board ethnicity and family ownership on earnings management in Malaysia. Design/methodology/approach The effect of audit committee independence, board ethnicity and family ownership on corporate governance is investigated via 1,206 firm-year observations between the fiscal years of 2004 and 2009 of Bursa Malaysia listed firms. Panel data regression analysis is used to analyze the relationship. Findings The findings of this study fail to associate the role of audit committee independence as proposed under RMCCG (2007) in curtailing earnings management activities, thus supporting the findings on power distance scores that power granted to the top management may result in less effective independent directors. Nonetheless, in support of the alignment effect theory, family ownership is found to reduce earnings management activities. The findings show that corporate governance is more effective in developing country family firms due to their long history of family reputation and the importance of institutional culture factors. Research limitations/implications This study focuses on board ethnicity, family ownership and its influence on earnings management. Originality/value This study offers insights into the importance of family institutional structures on corporate governance reforms in Malaysia as Malaysian family firms are mostly traditional firms that have built their reputation and strength in the industry for many generations.

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Earnings Management and Corporate Governance in Family Firms

International Financial Reporting Standards and New Directions in Earnings Management - Advances in Finance, Accounting, and Economics ◽

10.4018/978-1-5225-7817-8.ch006 ◽

2019 ◽

pp. 127-153

Author(s):

Elisabete Vieira ◽

Mara Madaleno

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Audit Committee ◽

Family Firms ◽

Management Practices ◽

Corporate Board ◽

Listed Firms ◽

Big 4 ◽

Ownership Effect ◽

And Control

Earnings management and corporate governance relationships are examined for a sample of 49 Portuguese listed firms considering an unbalanced panel for the period 2002-2017, using panel corrected standard errors models and considering the family ownership effect. Empirical findings reveal that there is a positive relationship between corporate board independence and earnings management and that the presence of women on board decreases earnings management practices. Results are consistent with the hypothesis that earnings management practices are lower in family firms than in non-family firms. Size, being audited by the Big 4 companies, return on assets, loss, and the existence of an audit committee on board influence positively earnings management, but leverage, age, and ownership control are negatively related to earnings management. Results indicate that further auditing and control is necessary for Portuguese listed companies leading to strict recommendations to be followed by policymakers regarding control of these firms.

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Family ownership heterogeneity and audit committees independence and its implication towards the revised Malaysia code on corporate governance (MCCG, 2007)

Corporate Ownership and Control ◽

10.22495/cocv11i4c5p3 ◽

2014 ◽

Vol 11 (4) ◽

pp. 456-462 ◽

Cited By ~ 2

Author(s):

Wan Masliza Wan Mohammad ◽

Wan Fadzilah Wan Yusoff ◽

Nik Mohamad Zaki Nik Salleh

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Audit Committee ◽

Family Firms ◽

Audit Committees ◽

Family Ownership ◽

Agency Conflicts ◽

Institutional Structures ◽

Corporate Governance Reforms ◽

Governance Reforms

This study examines the effectiveness of audit committee independence when moderated by firms’ family ownership. This is to investigate the implication of revised Malaysia Code on Corporate Governance (2007) that requires majority composition of independence directors in the audit committee. We study 1,206 firm-year observations between fiscal years 2004 to 2009 of firms listed in Bursa Malaysia. The findings suggest that independent directors are more effective in curbing earnings management when there is stronger ownership of family members. Our research offers insights on the important of family institutional structures on corporate governance reforms in Malaysia. Malaysian family firms are mostly traditional firms which have built their reputation and strength in the industry for many generations. The reputation built, improve shareholders confidence and reduce potential agency conflicts

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Earnings Management and Corporate Governance in Family Firms

10.4018/978-1-6684-3550-2.ch018 ◽

2022 ◽

pp. 417-443

Author(s):

Elisabete Vieira ◽

Mara Madaleno

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Audit Committee ◽

Family Firms ◽

Management Practices ◽

Corporate Board ◽

Listed Firms ◽

Big 4 ◽

Ownership Effect ◽

And Control

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Do corporate governance practices restrain earnings management in banking industry? Lessons from India

Journal of Financial Reporting and Accounting ◽

10.1108/jfra-02-2021-0060 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Deepa Mangala ◽

Neha Singla ◽

Neha Singla

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Board Of Directors ◽

Audit Committee ◽

Least Square ◽

Loan Loss ◽

Content Type ◽

Governance Practices ◽

Indian Banks

Purpose This study aims to investigate the role of corporate governance practices in restraining earnings management in Indian commercial banks. Design/methodology/approach Estimation of earnings management is based on discretionary loan loss provision and discretionary realised security gains and losses using Beatty et al. (2002) model. The effect of corporate governance on earnings management is examined by performing two-way least square dummy variable regression. Data for a period of five years (2016–2020) is collected from the Centre for Monitoring Indian Economy ProwessIQ database, Reserve Bank of India website, annual report of banks, National Stock Exchange and bank’s website. Findings Regression results exhibit that number of board committees, size and independence of audit committee and joint audit are significantly effective in curbing earnings management. Other board-related variables (size, independence, meetings and diligence) and audit committee variables (meetings and diligence) are not effective in restraining earnings management in Indian banks. Practical implications The findings may prove to be helpful to regulators, board of directors and investors. It shows the weak area of corporate governance in India that is lack of autonomy to independent directors, which needs regulators attention and it also suggests that the number of independent auditors should be adequate for audit purposes. The board of directors must ensure the formulation of an adequate number of committees, which perform their own super specialised functions. This study brings an alarm to investors not to rely on reported earnings alone as they may be manipulated. Originality/value This paper substantiates the scant literature on the role of corporate governance practices in restraining earnings management in banks of emerging markets and to the best of the authors’ knowledge impact of joint audits on earnings management is previously unexplored in Indian banks, which are examined in this study.

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Audit committee chairman characteristics and earnings management

Asia-Pacific Journal of Business Administration ◽

10.1108/apjba-10-2018-0188 ◽

2019 ◽

Vol 11 (4) ◽

pp. 339-370 ◽

Cited By ~ 1

Author(s):

Mujeeb Saif Mohsen Al-Absy ◽

Ku Nor Izah Ku Ismail ◽

Sitraselvi Chandren

Keyword(s):

Earnings Management ◽

Family Member ◽

Audit Committee ◽

Ordinary Least Squares ◽

Committee Chairman ◽

Least Squares Regression ◽

Content Type ◽

Listed Firms ◽

Jones Model ◽

Accounting Expertise

Purpose The purpose of this paper is to examine the influence of the characteristics of audit committee chairman (ACC) (tenure, age, gender, ethnicity, accounting expertise and directorship) on earnings management (EM) practices. Design/methodology/approach The Jones model and modified Jones model by Dechow et al. (1995) were used to determine the discretionary accruals (DA) of 288 Malaysian listed firms with lowest positive earnings for the years 2013‒2015. Findings The results of the ordinary least squares regression indicate that only tenure, gender and ethnicity of the ACC are associated with DA. A further test was conducted by dividing firms into two groups: firms whose boards are chaired by a family member and firms whose boards are chaired by a non-family member. The results reveal that it is possible for firms whose boards are chaired by family members to cause the corporate governance (CG) mechanisms, particularly the audit committee, to lose their effectiveness in overcoming the EM problem. In addition, robustness tests were conducted by using panel data regression, where the results were found to be similar to the original regression results. Originality/value This study alerts policymakers, firms and their stakeholders, as well as researchers, regarding the importance of having an independent board chairman, who has no relationship with any directors or major shareholders, as this may hinder the effectiveness of CG mechanisms in curbing EM, especially in emerging countries, such as Malaysia, where it is very difficult to stop members of the family from becoming board directors.

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The impact of corporate governance code on earnings management in listed non-financial firms

Journal of Accounting in Emerging Economies ◽

10.1108/jaee-09-2016-0081 ◽

2017 ◽

Vol 7 (4) ◽

pp. 428-444 ◽

Cited By ~ 6

Author(s):

Erick Rading Outa ◽

Paul Eisenberg ◽

Peterson K. Ozili

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Design Methodology ◽

Explanatory Variable ◽

Content Type ◽

Listed Firms ◽

Financial Firms ◽

New Institutions ◽

The Impact ◽

Practical Implications

Purpose The purpose of this paper is to examine whether voluntary corporate governance (CG) code issued in 2002 constrain earnings management (EM) among listed non-finance companies in Kenya. Design/methodology/approach Using a panel data of 338-firm year’s observations between 2005 and 2014, the authors test the hypothesis that CG constrains EM in non-finance firms listed in Kenya. The authors regress discretionary accruals (DA) against a developed Corporate Governance Index (CGI). Findings The overall results show that DA is not significantly related to CG suggesting the voluntary CG code does not deter EM in non-finance companies in Kenya. Practical implications Evidence of income decreasing\increasing accruals implies EM still exists among the listed firms. This suggests that policymakers may need to consider radical actions including alternative or new CG approaches and new institutions to improve the effectiveness of CG. Originality/value This study extends existing studies by including composite CG as possible explanatory variable for constraining EM. The authors contribute to the debate by demonstrating that the voluntary CG code in Kenya is not effective in constraining DA and therefore the current initiatives by the regulator to change the current CG code are appropriately directed.

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Audit committee effectiveness, audit quality and earnings management: a meta-analysis

International Journal of Law and Management ◽

10.1108/ijlma-01-2015-0006 ◽

2016 ◽

Vol 58 (2) ◽

pp. 179-196 ◽

Cited By ~ 20

Author(s):

Zgarni Inaam ◽

Halioui Khamoussi

Keyword(s):

Corporate Governance ◽

Earnings Management ◽

Audit Committee ◽

Audit Quality ◽

Good Governance ◽

Meta Analysis ◽

Negative Relationship ◽

Real Earnings Management ◽

Institutional Setting ◽

Content Type

Purpose – Many researchers, in several contexts, have investigated the influence of audit committee effectiveness and audit quality variables on reducing the extent of earnings management, and empirical evidence is rather inconsistent. Design/methodology/approach – The aim of this paper is to meta-analyze the results of 58 prior studies that examined whether differences in results are related to moderating effects associated with corporate governance mechanisms or measures of earnings management. Findings – The findings show that the meta-analysis identifies many significant relationships. The independence of the audit committee, its size, expertise and the number of meetings have a negative relationship with earnings management. Similar negative relationships exist between auditor size, specialization and earnings management. Research limitations/implications – This study contributes to the corporate governance literature. Further, recognizing the function of an audit committee and audit quality shows the value of considering an institutional setting in governance research. This study is significant to academic and practitioner literatures, policy makers and professional accounting bodies as it shows that governance reforms promote companies to adopt good governance practices. The results also give useful information to investors in examining the effect of audit committee characteristics and audit quality on earnings quality. Originality/value – This study extends existing research on audit committee and audit quality to oversee both accrual and real earnings management using meta-analysis. Thus, this study has the potential to help stakeholders, board of directors, regulators and auditors, who are related with enhancing the supervision of firms and reducing the opportunities given to managers, to engage in earnings management.

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Do families shape corporate governance structures?

Journal of Management & Organization ◽

10.1017/s1833367200002650 ◽

2009 ◽

Vol 15 (3) ◽

pp. 327-345 ◽

Cited By ~ 15

Author(s):

María Sacristán Navarro ◽

Silvia Gómez Ansón

Keyword(s):

Corporate Governance ◽

Empirical Evidence ◽

Family Firms ◽

Family Firm ◽

Family Ownership ◽

Governance Structures ◽

Listed Firms ◽

Board Committees ◽

Spanish Family ◽

Open Question

AbstractThis paper provides empirical evidence of family firm corporate governance structures, by examining a set of corporate governance characteristics of 132 non-financial Spanish listed firms. Results show that family firm boards present differential characteristics and that different patterns of family ownership configurations do not affect family firm corporate governance structures. We find that Spanish family firm boards are smaller than those in non-family firms. Family firm directors own a larger fraction of firm shares and have longer Chairman tenure than non-family firms, and family firms use fewer voluntary board committees – such as nomination and remuneration committees and executive committees. Besides, family firm boards and committees are biased towards insiders. Whether these differential characteristics affect other minority non-family shareholders negatively remains an open question.

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The impact of corporate governance mechanisms on earnings management in Islamic banks in the Middle East region

Journal of Islamic Accounting and Business Research ◽

10.1108/jiabr-11-2014-0039 ◽

2016 ◽

Vol 7 (4) ◽

pp. 318-348 ◽

Cited By ~ 18

Author(s):

Hounaida Mersni ◽

Hakim Ben Othman

Keyword(s):

Corporate Governance ◽

Middle East ◽

Earnings Management ◽

Audit Committee ◽

Islamic Banks ◽

Governance Mechanisms ◽

Loan Loss ◽

Content Type ◽

Corporate Governance Mechanisms ◽

The Impact

Purpose The purpose of this paper is to examine whether corporate governance mechanisms affect the reporting of loan loss provisions by managers in Islamic banks in the Middle East region. Design/methodology/approach This empirical study uses balanced panel data from 20 Islamic banks, from seven Middle East countries for the period 2007 to 2011. The regression model is estimated using random effects specifications. Findings The empirical results show that discretionary loan loss provisions (DLLP) are negatively related to board size and the existence of an audit committee. Results also report a positive relationship between sharia board size and DLLP. This indicates that small sharia supervisory boards are more effective than larger ones, which could be due to the higher costs and negative effects of large groups on decision-making. Results also highlight that the existence of scholars with accounting knowledge sitting on the sharia board reduces discretionary behavior. Additional results provide evidence that an external sharia audit committee is also found to reduce discretion in Islamic banks. The conclusions are found to be robust to endogeneity issues and potentially omitted variables. Practical implications The findings are potentially useful for regulators and shareholders. Regulators could use the findings to focus on corporate governance mechanisms that restrain earnings management practices in Islamic banks and implement regulations to strengthen them. Additionally, this study gives shareholders further insight which enables them to better monitor the actions of managers and thus increase their control over their investments. Originality/value This study provides two contributions to the literature on Islamic banking. First, to the authors’ knowledge, this study is only the second piece of research focused on the impact of corporate governance on earnings management in Islamic banks. Second, the authors have examined the effect of some new corporate governance mechanisms that have not been studied previously in the research literature.

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Earnings Quality, Family Influence and Corporate Governance: Empirical Evidence from Malaysia

10.26686/wgtn.17011394 ◽

2021 ◽

Author(s):

◽

Wan Adibah Binti Wan Ismail

Keyword(s):

Corporate Governance ◽

Board Of Directors ◽

Audit Committee ◽

Family Firms ◽

Earnings Quality ◽

Governance Structure ◽

Family Influence ◽

Family Ownership ◽

The Board Of Directors ◽

And Control

<p>This study investigates whether family ownership and control, and corporate governance are associated with earnings quality, and whether family influence in firms weakens the association between corporate governance and earnings quality. This study uses a panel sample of 527 publicly traded firms over the period 2003-2008 from the Malaysia Stock Exchange (Bursa Malaysia). Identifying family firms as firms in which family members hold a significant portion of shares and possess control over the board of directors, this study finds that family firms have significantly higher earnings quality. The results remain unchanged, even after using alternative measures of earnings quality and family influence. This study also finds that the earnings quality of firms in Malaysia is positively associated with the size and independence of the audit committee and negatively associated with the size of the board of directors. However, these relationships exist only for nonfamily firms. These results on the corporate governance variables suggest that the effectiveness of corporate governance could be mediated by family influence. Using multivariate regressions that include interaction variables for corporate governance and family firms, the study finds that the relationship between corporate governance and earnings quality is mediated by family ownership and control. The result is consistent with the argument that the monitoring role of corporate governance reduces when there is substantial control by family owners in a firm. Overall, this study concludes that family ownership and control drives higher quality earnings for firms regardless of their corporate governance structure.</p>

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