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Avoiding losses and earnings decrease by Malaysian companies before and after major corporate governance initiatives

Author

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  • Mohammad Talha
  • Musthafa Mohamad
  • Abdullah Sallehhuddin

Abstract

This paper investigates the distribution of the cross-sectional earnings per share and changes in earnings per share to exceed two psychological benchmarks that are avoiding losses and avoiding earnings decrease using sample of 4,565 firm years and 1,530 firm years of Malaysian public listed companies respectively covering financial data from 1994 to 2003. This study further compares the smoothness of the distribution of deflated earnings and changes in deflated earnings before and after the Asian financial crisis. It is found that Malaysian companies do avoid reporting losses even after the major reforms on corporate governance. However, the study found no tendencies among the firm to avoid earnings decrease. This research might be of interest to regulators as to where to look in conducting their oversight function, i.e. firms reporting small EPS just to avoid losses and reporting small EPS decrease may require closer scrutiny.

Suggested Citation

  • Mohammad Talha & Musthafa Mohamad & Abdullah Sallehhuddin, 2008. "Avoiding losses and earnings decrease by Malaysian companies before and after major corporate governance initiatives," International Journal of Managerial and Financial Accounting, Inderscience Enterprises Ltd, vol. 1(1), pages 45-63.
    • Handle: RePEc:ids:injmfa:v:1:y:2008:i:1:p:45-63
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