To what extent is earnings management practised in Malaysia?

Abstract

The paper analyses the earnings management practices of Malaysian firms over the post-crisis period. We propose three dimensions of earnings management, namely earnings aggressiveness, loss avoidance and earnings smoothing, to empirically test a sample of public-listed firms on Bursa Malaysia. The impact of earnings management practices on stock market is then analysed in terms of cost of equity to reflect if it has a significant role in influencing stock returns. The results indicate the sporadic incidence of earnings management practices among sample firms and the influence of the practices on the Malaysian equity market is insignificant. Such results are mixed and not supported with those studies using developed countries especially with relations to the stock returns.