The Malaysian Listing Requirement Reforms and Earnings Management Practices of Public Listed Firms

Abstract

This study examines the impact of Bursa Malaysia Listing Requirement reforms on the incidence of EM practices among Malaysian public listed companies. The sample used are the top 50 and bottom 50 companies listed on the corporate governance index issued by the Minority Shareholders Watchdog Groups and Nottingham University Business School. The required data was collected from the year 1994 to 2007 to reflect the Listing Requirement reforms. The Modified Jones (1991) model was used to detect earnings management practices of the sampled companies. It was found that earnings management practices in the post-reform period are lower than the pre-reform period, implying that the reforms had the intended impact of reducing the incidence of earnings management. Regression of discretionary accruals, control and corporate governance variables reveals that corporate governance variables have significant association with the proxy of earnings management i.e. discretionary accruals. Big four auditors, board independence and audit committee independence were significantly associated with earnings management. The findings suggest that the corporate governance initiatives taken by the regulatory agencies did improve the quality of corporate governance among listed firms specifically in mitigating the incidences of earnings management and therefore improving the quality of information in financial reports.