The Impact of Malaysian Code on Corporate Governance and Political Connections on Accounting Conservatism

Abstract

This study explores the relationships between accounting conservatism, the integration of the Malaysian Code on Corporate Governance (MCCG) into Bursa Malaysia listing requirements in 2001, and firms’ political connections. We find evidence that MCCG results in improved accounting conservatism in Malaysia. Furthermore, we find that prior to MCCG, firms with political connections lack accounting conservatism, and firms without political connections demonstrate accounting conservatism. After MCCG is included in Bursa Malaysia listing rules, both firms with and without political connections show improved accounting conservatism. More interestingly, politically-connected firms demonstrate stronger accounting conservatism compared to non-connected firms after the MCCG.