EARNINGS MANAGEMENT BEHAVIOR IN MALAYSIA: THE ROLE OF OWNERSHIP STRUCTURE AND EXTERNAL AUDITING

  • Mohd Nazli Mohd Nor Universiti Malaysia Terengganu
  • Nor Irdawati Mahyuddin Heriot–Watt University Malaysia
  • Hafiza Aishah Hashim Universiti Malaysia Terengganu
  • Hairul Suhaimi Nahar Sultan Qaboos University, Muscat, Sultanate of Oman

Abstract

This paper aims to empirically investigate firms’ earnings management (EM) behaviour, representing an issue in the realm of corporate financial reporting. Specifically, it explores the strategic roles of two common governance elements of ownership (managerial, institutional and family) and external audit in shaping the firms’ EM behaviour based on the two common EM attributes of Discretionary Accruals (DA) and Real Activities EM (REM). The analyses based on 227 survived Malaysian listed firms throughout the sixteen-year period from 2001 to 2016 (3,632 firm-year observations) indicate a dynamic EM behaviour depending on the presence of different ownership structure. Whilst a high percentage of family and institutional ownership mitigates DA, it however does not hold true for REM. Further, this paper also finds that the external control mechanism of audit quality is not significant in mitigating both EM attributes. The empirical results suggest that firms facing different challenges would affect the firms' financial reporting behaviours in their choice of EM. The paper adds to the growing body of empirical knowledge dealing with the determinants of DA and REM from the lens of an emerging economy of Malaysia. 
 
Keywords: Earnings management, discretionary accruals, real earnings management, accrual earnings management, financial reporting quality.
Published
Dec 28, 2020
How to Cite
MOHD NOR, Mohd Nazli et al. EARNINGS MANAGEMENT BEHAVIOR IN MALAYSIA: THE ROLE OF OWNERSHIP STRUCTURE AND EXTERNAL AUDITING. Management & Accounting Review (MAR), [S.l.], v. 19, n. 3, dec. 2020. ISSN 2550-1895. Available at: <http://arionline.uitm.edu.my/ojs/index.php/MAR/article/view/1518>. Date accessed: 24 sep. 2021. doi: http://dx.doi.org/10.24191/mar.v19i3.1518.