Ownership Structure and Earnings Management Practices: An Empirical Evidence from Malaysian Public Firms DOI: https://doi.org/10.33093/ijomfa.2023.4.1.4

Main Article Content

Muhammad Shaheer Nuhu
Zauwiyah Ahmad
Ying Zhee Lim

Abstract

This paper aims to analyse the mitigating effects of ownership structure on earnings management (EM) practices. Data were collected from firms listed on Bursa Malaysia’s main market, covering the years 2011 through 2021. Panel Regression was employed to analyses the data, with the aid of STATA software version 17. The finding of this study confirmed significant negative association between foreign ownership (FOW) and EM of listed firms in Malaysia.  Additionally, managerial ownership (MOW) and ownership concentration (OC) were found to be insignificantly related to EM. Similarly, the two control variables included in the analysis, only firm size (FISZ) was found to be significantly related to EM practices. Practically, this study offers an effective framework for OC, MOW, FOW and EM to reduce executive manager's opportunistic behaviour. The findings from this study supports the need for broader understanding so that investors and other stakeholders can see through earnings reports and, as a result, make informed contractual decisions, particularly when those decisions pertain to non-owner-controlled firms. In addition, the study’s findings provide helpful information to stakeholders in Malaysian listed companies on the value of FOW and it influence on EM mitigation.

Article Details

Section
Management, Finance and Accounting

References

Abdullahi, M. B. & Jafaru, A. B. (2017). Does Ownership Structure Moderate the Relationship between Corporate Financial Structure and Corporate Financial Performance? Journal of Finance, Accounting and Management, 8(2), 17-32.

Affes, H., & Smii T (2016). The Impact of the Audit Quality on that of the Earnings Management: Case Study in Tunisia. Journal of Accounting & Marketing, 5(3), 178-185.

Alhadab, M.M. (2018). Real and accrual earnings management around initial public offerings in Jordan. International Business Research, 11(1), 204-216.

Ali, A. & Zhang, W. (2016). CEO Tenure and Earnings Management. Journal of Accounting and Economics, 59(1), 60-79. Ali, M. M., & Nasir, N. M. (2018). Corporate governance and financial distress: Malaysian perspective. Asian Journal of Accounting Perspectives, 11(1), 108-128.

Ali, M. M., & Nasir, N. M. (2018). Corporate governance and financial distress: Malaysian perspective. Asian Journal of Accounting Perspectives, 11(1), 108-128.

Alrabba, H.M., Abu Haija, A.A., Al-Qudah, A.M. & Azzam, M.J. (2018). The Mediating Role of Foreign Ownership in the Relationship between Board Characteristics and Voluntary Disclosures of Jordanian Banks. Academy of Accounting and Financial Studies Journal, 22(6), 1-16.

Al-Sayani, Y. M., Al-Matari, E. M., Alhebry, A. A., Mohamed, G. F. G., & Ahmad, A. A. (2020). The Effect of Corporate Governance Determinants on Firm Performance: Malaysia Listed Companies Evidence. PalArch's Journal of Archaeology of Egypt/Egyptology, 17(11), 61-83.

Al-Shattarat, B. (2021). The consequence of earnings management through discretionary accruals on the value relevance in Saudi Arabia. Cogent Business & Management, 8(1), 1-16 Alzoubi, E.S.S. (2016). Disclosure quality and earnings management: evidence from Jordan. Accounting Research Journal, 29(4), 429-456.

Anh, T., Thi, L., Quang, H. & Thi, T. (2020). Factors influencing the effectiveness of internal control in cement manufacturing companies. Management Science Letters, 10(1), 133-142. Arja, S., Chaterine, S. & Rizky, B.W. (2019).Ownership Structure and Earnings Management in Indonesian Listed Banks. Journal of Economics and Business, 2(2), 1-12

Astami, E. W., Rusmin, R., Hartadi, B., & Evans, J. (2017). The role of audit quality and culture influence on earnings management in companies with excessive free cash flow: Evidence from the Asia-Pacific region. International Journal of Accounting & Information Management, 25(1), 21-42.

Aygun, M.I.S., & Sayim, M. (2014). The effects of corporate ownership structure and board size on earnings management: Evidence from Turkey. International Journal of Business and Management, 9(12), 123-135.

Baig, A., De Lisle, J., & Zaynutdinova, G. R. (2018). Passive ownership and earnings manipulation. Paper presented at the 9thConference on Financial Markets and Corporate Governance (FMCG), La Trobe and Monash University, Australia, 5–7 April 2018 (pp. 46–73).

Bao, S. R. & Lewellyn, K. B. (2017). Ownership Structure and Earnings Management in Emerging Markets: An Institutionalized Agency Perspective. International Business Review, 26(5), 828-838.

Behbehani, H. (2021). Internal Corporate Governance Mechanisms and Firm Performance: Evidence from GCC Countries. Doctor of Philosophy Dissertation, University of Stirling Scotland, United Kingdom.

Chapple, L., Dunstan, K., & Truong, T. P. (2018). Corporate Governance and Management Earnings Forecast Behaviour. Pacific Accounting Review, 30(2), 222–242.

Chen, H., Jory, S., & Ngo, T. (2019). Earnings management under different ownership and corporate governance structure: A natural experiment with master limited partnerships. Quarterly Review of Economics and Finance, 76(2), 139–156.

Cowling M., Liu, W. & Zhang, N. (2017). Did firm age and entrepreneurial experience count? SME performance after the global financial crisis. Journal of Evolutionary Economics, this issue, 3(2), 56-71.

Dao, B. T. T., & Ngo, H. A. (2020). Impact of Corporate Governance on Firm Performance and Earnings Management a Study on Vietnamese Non-Financial Companies. Asian Economic and Financial Review, 10(5), 480.

DeZoort, F.T. & Harrison, P.D. (2018). Understanding auditors’ sense of responsibility for detecting fraud within organizations. Journal of Business Ethics, 149(4), 857-874.

Di Meo, F., Lara, J. M. G., & Surroca, J. A. (2017). Managerial entrenchment and earnings management. Journal of Accounting and Public Policy, 36(5), 399-414.

Doan, T. N., & Nguyen, H. L. (2018). Affecting of ownership structure on earnings management behaviours of listed companies in Hochiminh stock market. Journal of Economics and Development, 254(2), 73-82.

Domenico, C., & Ray, D. (2014). An assessment of corporate governance reforms in Italy based on a comparative analysis of earnings management. The International Journal of Business in Society, 14(3), 234-257.

El-Moslemany, R. & Nathan, D. (2019). Ownership structure and Earnings Management: evidence from Egypt. International Journal of Business and Economic Development, 7 (1), 18-32.

Francis, B., Hasan, I. & Li, L. (2016). A cross-country study of legal-system strength and real earnings management. Journal of Accounting and Public Policy, 35(5), 477-512.

Gerged, A.M., Al-Haddad, L.M. & Al-Hajri, M.O. (2020). Is earnings management associated with corporate environmental disclosure? Evidence from Kuwaiti listed firms. Accounting Research Journal, 33(1), 167-185.

Grimaldi, F. & Muserra, A.L. (2017). The Effect of the Ownership Concentration on Earnings Management. Empirical Evidence from the Italian Context. Corporate Ownership & Control, 14(1), 236-248.

Guangguo, S., Ruiqi, S. & Hezun, L. (2019). Does executive directors from controlling shareholders improve corporate governance? Nankai Business Review International, 10(4), 546-569.

Hamdan, A. M. M., & Al Mubarak, M. M. S. (2017). The impact of Board Independence on Accounting-Based Performance. Journal of Economic and Administrative Sciences, 33(2), 114-130.

Hasan, S., Jatiningrum, C., Fauzi, & Abdul-Hamid, M.A. (2019). The Moderating Effect of Audit Quality on Audit Committee and Financial Reporting Quality in Malaysia. Opcion, Año Especial, 35(2), 2899-2921.

Hashim, H.A., Salleh, Z., Mohamad, N.R. & Anuar, F.S., Ali, M.M. (2019). Auditors’ perceptions towards their role in assessing, preventing and detecting business fraud. International Journal of Innovation, Creativity and Change, 5(2), 847-862.

Hayam, W., & Khaled, E. (2013). Reinvestigating the relationship between owner-ship structure and inventory management: A corporate governance perspective. International Journal of Production Economics, 14(1), 207–218.

Hsu, M. F., & Wen, S. Y. (2015). The influence of corporate governance in Chinese companies on discretionary accruals and real earnings management. Asian Economic and Financial Review, 5(3), 391-406.

Jensen, M. C. & Meckling, W. H. (1976). Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure. Journal of Financial Economics, 3(10), 305–360.

Jumreornvong, S., Treepongkaruna, S., Prommin, P., & Jiraporn, P. (2019). The effects of ownership concentration and corporate governance on corporate risk-taking. Accounting Research Journal, 33(1), 252–267.

Lai, L., & Tam, H. (2017). Corporate governance, ownership structure and managing earnings to meet critical thresholds among Chinese listed firms. Review of Quantitative Finance and Accounting, 48(3), 789-818.

Madhani, P.M. (2016). Ownership Concentration, Corporate Governance and Disclosure Practices: A Study of Firms Listed in Bombay Stock Exchange (2016). Journal of Corporate Governance, 15(4), 7-36

Martinez, A.L. & Moraes, A.D. (2017). Relationship between Auditors’ Fees and Earnings Management. Revista de Administração de Empresas, 57(2), 148-157.

Mindzak, J. & Zeng, T. (2018). The Impact of Pyramid Ownership on Earnings Management. Asian Review of Accounting, 26(2), 208-224.

Mohamad, S., Abdurrahman, A. P., Keong, O. C., & Garrett, K. W. C. (2020). Corporate Governance and Earnings Management: Evidence from Listed Malaysian Firms. Journal of Critical Reviews, 7(2), 90-97

Mohammed, N. F., Sanusi, Z. M., & Alsudairi, F. S. (2017). Corporate Governance and Malaysian Politics: Theoretical Framework for Accounting Quality. International Journal of Economics and Financial Issues, 7(2), 188.

Monteiro, A. P., Rua, O. L., Figueira, J. C., & Leite, E. (2021). Practices and mechanisms to mitigate the negative effects of accounting-based earnings management: An empirical study from the professionals’ perspective. International Journal of Advanced and Applied Sciences, 8(9), 15-28.

Nasir, M. N. A. B., Ali, M. J., Razzaque, R. M., & Ahmed, K. (2018). Real earnings Management and financial statement fraud: evidence from Malaysia. International Journal of Accounting & Information Management, 26(4), 508-526.

Nguyen, A. H, Nguyen, L. H., & Doan, D. T. (2020). Ownership Structure and Earnings Management: Empirical Evidence from Vietnam Real Estate Sector. Real Estate Management and Valuation, Sciendo, 28(2), 37–51.

Nguyen, H. A., Lien Le, Q., & Anh Vu, T. K. (2021). Ownership structure and earnings management: Empirical evidence from Vietnam. Cogent Business & Management, 8(1), 1908006.

O’Callaghan, S., Ashton, J., & Hodgkinson, L. (2018). Earnings management and managerial ownership in private firms. Journal of Applied Accounting Research, 12(2), 23-35.

Pernamasari, R., Purwaningsih, S., Tanjung, J., & Rahayu, D. P. (2020). Effectiveness of firm performance and earnings management to stock prices. EPRA International Journal of Multidisciplinary Research (IJMR)-Peer Reviewed Journal, 6(1), 75-83.

Parveen, S., Malik, N., Mahmood, Y., & Jan, F. A. (2016). Impact of ownership structure on earnings management: evidence from Pakistani banking sector. Journal of Poverty, Investment and Development, 23(2), 24-34.

Piosik, A., & Genge, E. (2020). The influence of a company’s ownership structure on upward real earnings management. Sustainability, 12(1), 152.

Pugatekaew, K. (2021). Management Ownership Concentration Shareholding in Group of Family, Board Composition and Earnings Management. Doctoral dissertation, Mahasarakham University.

Rahahleh, M. H., & Hamzah, A. H. Bin. (2019). An Investigation of Audit Committee Characteristics on Audit Quality towards the Changes on Real Earnings Management: Evidence from Jordan. International Journal of Academic Research in Business and Social Sciences International, 9(10), 242–252.

Reyna, J. M. S. M., Vázquez, R. D., & Valdés, A. L. (2012). Corporate governance, ownership structure and performance in Mexico. International Business Research, 5(11), 12-26

Roychowdhury, S. (2006). Earnings management through Real Activities Manipulation. Journal of Accounting and Economics, 42(3), 335-370. Saona, P., & Muro, L. (2018). Firm-and country-level attributes as determinants of earnings management: An analysis for Latin American firms. Emerging Markets Finance and Trade, 54(12), 2736-2764.

Saona, P., & Muro, L. (2018). Firm-and country-level attributes as determinants of earnings management: An analysis for Latin American firms. Emerging Markets Finance and Trade, 54(12), 2736-2764.

Saona, P., Muro, L., & Alvarado, M. (2020). How do the ownership structure and board of directors’ features impact earnings management? The Spanish case. Journal of International Financial Management & Accounting, 31(1), 98-133.

Shayan, N.M., Philip, S., Sanusi, M.Z. & Ancella, H. (2017). How Efficient Ownership Structure Monitors Income Manipulation? Evidence of Real Earnings Management among Malaysian Firms. Research in International Business and Finance, 23(2), 23-36.

Soliman, M. M. & Ragab, A. A. (2014). Audit committee effectiveness, audit quality and earnings management: An empirical study of the listed companies in of the listed companies in Egypt. Research Journal of Finance and Accounting, 5(2), 155–166.

Tran, T. Q., Ly, A. H., & Nguyen, D. K. N. (2020). Relationship between ownership structures and earnings management behaviour in Vietnamese commercial banks. The Journal of Asian Finance, Economics, and Business, 7(9), 401-407.

Tuan Mansor, T. M., Mohamad Ariff, A., & Hashim, H. A. (2020). Whistleblowing by auditors: the role of professional commitment and independence commitment. Managerial Auditing Journal, 34(3), 234-245.

Widagdo, A. K., Rahmawati, R., Murni, S., & Ratnaningrum, R. (2021). Corporate Governance, Family Ownership, and Earnings Management: A Case Study in Indonesia. The Journal of Asian Finance, Economics and Business, 8(5), 679-688.

Zellweger, T., Nason, R., Nordqvist, M. & Brush, C. (2013). Why do family firms strive for nonfinancial goals? An organizational identity perspective. Entrepreneurship Theory and Practice, 37(2), 229-248.

Zhong, K., Gribbin, D.G., & Zheng, X. (2007), The Effect of Monitoring by Outside Block holders on Earnings Management, Quarterly journal of Business and Economics, 46(1), 37.

Zraiq, M. A. & Fadzil, F. H. (2018). The impact of audit committee characteristics on firm performance: Evidence from Jordan. Scholar Journal of Applied Sciences and Research, 1(5), 39-42.

Zulkefli, N. N., & Quddus, S. A. (2019). Corporate Governance in Malaysia: Issues and Challenges (Isu dan Cabaran Tadbir Urus Korporat di Malaysia). Journal of Islam in Asia 16(2), 280-301.