Board independence tenure and real earnings management: accretive share buyback activities in Malaysia

Abstract

This study examines the impact of tenure in independent directors and audit committees on accretive share buybacks for real earnings management. Taking a sample of 601 non-financial firms listed on Bursa Malaysia from 2010 to 2015, we use a tobit model to test our hypotheses, where real earnings management is proxied by accretive share buyback. We find a significant effect of the tenure of outside directors on accretive share buyback. Firms with long-serving independent board directors are more likely to undertake real earnings management through accretive share buyback. Evidence is also found that firms with audit committees including long-serving members are more likely to engage in share buyback to maximise reported earnings per share (EPS) for earnings management. Finally, a high percentage of independent directors on audit committees restrain managers from utilising accretive share buyback to manage reported EPS.