The Impact of Corporate Governance and Real Earnings Management on Financial Statement Fraud in Malaysia

2009 ◽  
Author(s):  
Noorul Azwin
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Real Earnings Management ◽  
Financial Statement ◽  
Financial Statement Fraud ◽  
The Impact

scholarly journals The impact of ownership type on the relationship between corporate governance and earnings management: An empirical study

2019 ◽  
Vol 16 (4) ◽  
pp. 31-44
Author(s):  
Ahmed Boghdady
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Cash Flows ◽  
Real Earnings Management ◽  
Ownership Type ◽  
Moderation Effect ◽  
Corporate Governance Mechanisms ◽  
The Impact ◽  
The Relationship ◽  
Privately Owned

This study investigates the effect of ownership type on the relation between corporate governance and earnings management. While previous literature has mainly examined the relationship between corporate governance and both accrual and real earnings management, no study to date, to the researcher’s best knowledge, focused on the moderation effect of ownership type on this relationship. Three proxies for measuring accrual and real earnings management, namely discretionary accruals (DA), abnormal cash flows (ACFO), and abnormal discretionary expenses (ADISX) are employed. Three empirical models (i.e. DA, ACFO, and ADISX) are developed in which the earnings management proxies represent the dependent variables and are tested using a sample of non-financial companies containing state-owned and privately owned companies over the period from 2010 to 2017, with 1030 firm-year observations. The results show a positive relationship between ownership type and both accruals manipulation and sales manipulation. In general, the results suggest that the ownership type moderates the relationship between corporate governance and earnings management. The results suggest also that corporate governance mechanisms may not play an almost the same role in monitoring and mitigating real earnings management (REM) practices as they do for accrual earnings management (AEM) in Egypt. Moreover, no evidence is found supportive of the trade-off effect which means that managers in Egyptian firms use both types of earnings management jointly to reach the target levels of earnings

scholarly journals The Impact of Financial Statement Comparability on Earnings Management: Evidence from Frontier Markets

2020 ◽  
Vol 8 (4) ◽  
pp. 73
Author(s):  
Wil Martens ◽  
Prem W. S. Yapa ◽  
Maryam Safari
Keyword(s):  
Earnings Management ◽  
Financial Reporting ◽  
Common Law ◽  
Accounting Standards ◽  
Real Earnings Management ◽  
Financial Statement ◽  
Financial Reporting Standards ◽  
Developed Markets ◽  
Accounting Comparability ◽  
The Impact

This paper examined whether financial statement comparability constrains opportunistic earnings management in frontier market countries. Using a large sample of 19 frontier market countries, and an accounting comparability method that maps comparability across several accounting standards, the results show that enhanced financial comparability constrains accruals earnings management (AEM). Contrary to developed markets and novel to this study, a significant relationship between financial comparability and real earnings management (REM) was not found. For greater robustness, AEM and REM were also tested on both International Financial Reporting Standards (IFRS) adopting and non-adopting countries. The results suggest IFRS adoption constrains AEM, yet exhibited no impact on constraining REM. Additionally, the use of BigN auditors failed to conclusively show an ability to moderate EM. When combined, the results suggest that frontier markets engage in less REM than expected. It is also noted that the legal roots (civil vs. common law) play a significant role in constraining earnings management. Common law countries exhibited lower AEM when comparability increased; this significance was not found in countries that were rooted in civil law. Contributions from this study show that findings from developed markets cannot be generalised to frontier markets.

scholarly journals Olympus Corporation Financial Statement Fraud Case Study: The Role That National Culture Plays On Detecting And Deterring Fraud

2014 ◽  
Vol 10 (2) ◽  
pp. 175-184 ◽  
Author(s):  
Anita R. Morgan ◽  
Cori Burnside
Keyword(s):  
Corporate Governance ◽  
National Culture ◽  
Corporate Culture ◽  
Fraud Detection ◽  
Financial Statement ◽  
Japanese Culture ◽  
Financial Statement Fraud ◽  
The Impact ◽  
Insight Into

Recent cases provide insight into the role that an unethical corporate culture plays in financial statement fraud. The case of financial statement fraud in Olympus Corporation, a Japanese firm, provides the opportunity to examine how national culture plays a role in corporate governance and fraud detection. This case study focuses on the impact of Japanese culture on the corporate culture of The Olympus Corporation, and how that corporate culture resulted in financial statement fraud.

The impact of audit committee on real earnings management: Evidence from Netherlands

2020 ◽  
Vol 4 (1) ◽  
pp. 33-46 ◽  
Author(s):  
Sana Masmoudi Mardessi ◽  
Yosra Makni Fourati
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Audit Committee ◽  
Stock Exchange ◽  
Gender Diversity ◽  
Real Earnings Management ◽  
Financial Expertise ◽  
Relevant Topic ◽  
And Gender ◽  
The Impact

This paper aims to examine the effect of the characteristics of an audit committee on real earnings management in the Dutch context. Our sample is composed of 80 non-financial companies listed on the Amsterdam Stock Exchange during the period between 2010 and 2017. Four proxies are used to measure audit committee characteristics, namely, audit committee independence, financial expertise, gender diversity, and audit committee meetings. To test our hypotheses, we use a regression model to identify the influence of a set of audit committee characteristics on real earnings management after controlling for firm audit committee size, leverage, size, loss, growth and board size. Our analyses provide evidence that audit committee independence and gender diversity constrain real earnings management. Our findings also suggest that audit committee financial expertise reduces to some extent the likelihood of engaging in real earnings management. To the best of our knowledge, the Dutch context is not yet explored especially following the issue of the long-awaited new Dutch Corporate Governance Code in 2016 which has been updated for a long period in 2008. Therefore, corporate governance is a relevant topic in the Netherlands. This study contributes geographically to the Audit Committee and earnings management literature that examines another possible method, specifically, real earnings management.

scholarly journals Preventing financial statement frauds through better corporate governance

2017 ◽  
Vol 14 (3) ◽  
pp. 271-285 ◽  
Author(s):  
Barbara Sveva Magnanelli ◽  
Luca Pirolo ◽  
Luigi Nasta
Keyword(s):  
Corporate Governance ◽  
Multinomial Logistic Regression ◽  
Negative Relationship ◽  
Agency Problems ◽  
Financial Statement ◽  
Financial Statement Fraud ◽  
Governance System ◽  
Cross Sectional ◽  
The Impact

Acting within the agency theory theoretical framework, the paper focuses on the role of the corporate governance as a system to monitor and predict the fraud occurrence and magnitude. Specifically, the study examines the impact of the quality of the corporate governance of the firms, for which a fraud was detected, on the fraud occurrence and magnitude. We posit that fraudulent behaviours, by those who can take advantage of information asymmetry and gain personal benefits from them, can occur when strong agency problems emerge and a weak governance exists. Thus, the financial statement fraud can be seen as the result of high agency problems and high conflicts of interests not solved by the company. Starting from a sample of 101 listed companies, for which a fraud was detected, using a principal component analysis, we develop a corporate governance index, which measures the quality of the governance system of the firms. To test the hypothesis, we run a multinomial logistic regression on a cross-sectional analysis, controlling the results with a matched sample of firms that did not experienced any fraud. Empirical evidences seem to confirm the existence of a negative relationship between the quality of the corporate governance system of a firm and both the financial statement fraud occurrence and magnitude, indicating the governance system of the firm as a fraud deterrent for any amount of financial statement fraud. These findings are even stronger for firms characterized by the presence of a blockholder. This study contributes to the governance literature by focusing on the corporate governance quality and its impact on financial statement frauds. Moreover, the analysis suggests that a good level of governance can help companies to mitigate the agency problems and to detect fraudulent behaviours, thus our empirical evidence can guide regulators in developing regulations to avoid the fraud occurrence.

Real earnings management and financial statement fraud: evidence from Malaysia

2018 ◽  
Vol 26 (4) ◽  
pp. 508-526 ◽  
Author(s):  
Noorul Azwin binti Md Nasir ◽  
Muhammad Jahangir Ali ◽  
Rushdi M.R. Razzaque ◽  
Kamran Ahmed
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Design Methodology ◽  
Production Costs ◽  
Real Earnings Management ◽  
Financial Statement ◽  
Financial Fraud ◽  
Financial Statement Fraud ◽  
Content Type

Purpose We examine whether the fraud firms are engaged in real earnings management and accrual earnings management prior to the fraud year in the Malaysian context. Design/methodology/approach Our sample comprises of 65 financial statement fraud and 65 non-fraud firms over a period of eight years from 2001 to 2008. Findings Using the abnormal cash flow from operations (CFO) and abnormal production costs as the proxies for real earnings management, we find that financial statement fraud firms engage in manipulating production costs during preceding two years of the fraud event. However, our results show that financial fraud firms engage in manipulating CFO prior to the fraud event. Additionally, we find that financial statement fraud firms prefer to manipulate earnings using accruals relative to real earnings prior to the fraud year. Originality/value Our results demonstrate that real earnings management is more aggressive in financial statement fraud firms compared to the non-fraud firms in the four years prior to fraud.

scholarly journals Real Earnings Management, Firm Performance, and Corporate Governance Mechanism

2021 ◽  
Vol 3 (2) ◽  
pp. 39-49
Author(s):  
Maria Stefani Osesoga ◽  
Rosita Suryaningsih ◽  
Febryanti Simon
Keyword(s):  
Corporate Governance ◽  
Firm Performance ◽  
Earnings Management ◽  
Cash Flow ◽  
Stock Exchange ◽  
Real Earnings Management ◽  
Governance Mechanism ◽  
Discretionary Accrual ◽  
Corporate Governance Mechanism ◽  
The Impact

The purpose of this study is to analyze the impact of real earnings management on firm performance and the impact of corporate governance as an intervening variable in the relationship between real earnings management and firm performance. The object are companies include in Corporate Governance Perception Index during 2015-2019 and listed in Indonesia Stock Exchange (IDX) and analyzed by using path analysis method. Real earnings management has a significant effect on the firm performance. Furthermore, with corporate governance mechanism within the company, real earnings management significantly affect firm performance. This research is meaningful, but has limitations. The result cannot be generalizing because the sample only companies that listed in CGPI and IDX period 2015-2019. The research implication are as follows: top level management should be cautious about credit policy, cash flow from operation, discretionary expenditures, and production. Earnings management is one of variable that the most prevalent in recent studies but the proxy for earnings management in the recent studies used discretionary accrual. In this research, real earnings management is used to indicate earnings management which measured by abnormal cash flow from operation. Thus, it may provide some contribution to the literature.

scholarly journals The Effectiveness of Corporate Governance in Constraining Fraud: Evidence from Listed Manufacturing Firms in Indonesia

2020 ◽  
Vol 2 (3) ◽  
pp. 232-242
Author(s):  
Yenny Wati ◽  
Rita Anugerah ◽  
Vince Ratnawati
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Partial Least Square ◽  
Least Square ◽  
Financial Statement ◽  
Manufacturing Companies ◽  
Financial Statement Fraud ◽  
Governance Mechanisms ◽  
Good Corporate Governance ◽  
Corporate Governance Mechanisms

Objective – The purpose of this study is to examine the direct effect of good corporate governance mechanisms on financial statement fraud with earnings management as a mediating variable.Design/methodology – This study used secondary data from manufacturing companies listed on the Indonesia Stock Exchange for the 2013-2017 period. The sample was determined using the purposive sampling method and was chosen based on certain considerations or criteria. The data in this study was analyzed using partial least square and performed with WarpPLS 5.0 software.Results – The results of this study prove that the mechanism of good corporate governance has a negative effect on financial statement fraud and earnings management. Earnings management can affect the effectiveness of good corporate governance mechanisms on financial statement fraud.Research limitations/implications - This research promotes the need for a company to inspect and maintain the importance of good corporate governance to avoid earnings management and fraud practices. From this research, investors can identify which companies apply good corporate governance in their company activities and systems.

Role of corporate governance in constraining earnings management practices: a study of select Indian and Chinese firms

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Aprajita Pandey ◽  
J.K. Pattanayak ◽  
Prakash Singh
Keyword(s):  
Corporate Governance ◽  
Earnings Management ◽  
Management Practices ◽  
Audit Quality ◽  
Least Square ◽  
Real Earnings Management ◽  
Chinese Stock Market ◽  
Content Type ◽  
Country Level ◽  
The Impact

Purpose The purpose of this paper is to investigate the effect of corporate governance on both accrual-based and real earnings management practices in select firms of the two world's largest economies, i.e. India and China. Design/methodology/approach The study has implemented a feasible generalized least square regression (FGLS) method to analyse the effect of corporate governance on accrual-based and real earnings management. Findings The study exhibits the significant contribution of large board sizes and independent boards in constraining the use of both accruals as well as real earnings management practices. However, audit quality had an impact on accrual earnings management only. The study also documents that accrual earnings management practices are controlled when the government’s potential to develop and enactment of policies increases. Practical implications The findings of the study provide insights to analysts, prospective investors and regulators to evaluate the effectiveness of the board in a new issue firm and help the firm to enhance its corporate governance policies. Originality/value Unlike previous studies who mostly examined the impact of corporate governance factors on accrual earnings management, the present study has, first, considered both accruals as well as real earnings management. Second, the present study has used the unique sample of new issue firms listed on the Indian and Chinese stock market, and third, the study did an additional analysis to examine the impact of country-level governance factors on accrual earnings management.

PENGARUH MANAJEMEN LABA TERHADAP ABNORMAL RETURN

2009 ◽  
Author(s):  
Zirman Zirman ◽  
Lily Lily
Keyword(s):  
Earnings Management ◽  
Cash Flow ◽  
Significant Influence ◽  
Stock Price ◽  
Abnormal Return ◽  
Real Earnings Management ◽  
Financial Statement ◽  
Discretionary Accrual ◽  
Stock Price Reaction ◽  
Flow Components

This research investigates the consequence of earnings management by analyzing stock price reaction to the full set financial statement in 2008 which can be used by investors to detect earnings management by the firms. This research investigated two forms of earnings management (accrual and real earnings management). The samples is drawn from firms in IDX Statistic 2008 which categorized as active in frequency, value or volume. The method of analysis of this research used multi regression. The results show (1) discretionary accrual had negative significant influence to abnormal return, (2) abnormal cash flow from operation had negative significant influence to abnormal return. The results implicate that the investors are aware of the accrual earnings management (discretionary accrual) and real earnings management (abnormal cash flow) components in the earnings reported by the firms and they react negative to this components.

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