Abstract
Managerial Opportunism: Monitoring Financial Risk of Malaysian Shariah-compliant Companies
Highlights
The scrutiny toward the accounting and auditing professions is escalating
This study focuses on the aspect of financial risk in addressing opportunistic behavior and investigates the relationships of risk of financial distress (z-score), leverage, and free cash flows on earnings management in Shariah-compliant companies
Following Roychowdhury (2006), the current study focuses on the abnormal level of the cost of goods sold and abnormal level of discretionary expenses as the proxies for earnings management
Summary
The scrutiny toward the accounting and auditing professions is escalating. Recent appalling corporate scandals in Asia (see Appendix A), such as Satyam, Olympus Corp, Toshiba, Daewoo Shipbuilding & Marine Engineering, and Transmile Berhad, have drawn considerable attention toward managerial opportunistic behaviors in practicing earnings management. Healy and Wahlen (1999) explained that “earnings management happens when managers alter financial reports with the intention to either mislead readers of those statements or to influence contractual outcomesThis journal is a member of and subscribes to the principles of the Committee on Publication Ethics (COPE)that rely on the accounting numbers reported in the financial statements.” earnings management involves the selection of accounting procedures and estimates that conform to generally accepted accounting principles (GAAP). Healy and Wahlen (1999) explained that “earnings management happens when managers alter financial reports with the intention to either mislead readers of those statements or to influence contractual outcomes. Recent appalling corporate scandals in Asia (see Appendix A), such as Satyam, Olympus Corp, Toshiba, Daewoo Shipbuilding & Marine Engineering, and Transmile Berhad, have drawn considerable attention toward managerial opportunistic behaviors in practicing earnings management. This journal is a member of and subscribes to the principles of the Committee on Publication Ethics (COPE). Shariah-compliant companies are perceived to avoid earnings manipulation, any unethical transactions, and any matters that have adverse effects on the investment activities of a company (Abdul Rahman, Rahman and Courtney, 2010; Alam, Hassan, and Said, 2015)
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