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

Author

Listed:
  • Wan Masliza Wan Mohammad
  • Shaista Wasiuzzaman

Abstract

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 underRMCCG (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.

Suggested Citation

  • Wan Masliza Wan Mohammad & Shaista Wasiuzzaman, 2020. "Effect of audit committee independence, board ethnicity and family ownership on earnings management in Malaysia," Journal of Accounting in Emerging Economies, Emerald Group Publishing Limited, vol. 10(1), pages 74-99, January.
    • Handle: RePEc:eme:jaeepp:jaee-01-2019-0001
    DOI: 10.1108/JAEE-01-2019-0001
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    Cited by:

    1. Slavko Sodan & Ivana Perica & Stipe Curkovic, 2023. "Agency Conflicts And Financial Reporting Quality," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 32(2), pages 495-509, december.
    2. Benedict Valentine Arulanandam & Christo Selvan & Goh Xin Tong, 2023. "Critical Factors Influencing Firms' Risk-Taking Behaviour: CEO Characteristics and the Moderating Role of the Audit Committee," Central European Business Review, Prague University of Economics and Business, vol. 2023(5), pages 1-41.

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