IFRS convergence and earnings management: Malaysian evidence

• Main Author: Khoo, Chun Peng
• Format: Thesis
• Language: English; English
• Published: 2013
• Subjects: HF5601-5689 Accounting
• Online Access: http://etd.uum.edu.my/5063/1/s811883.pdf; http://etd.uum.edu.my/5063/2/s811883_abstract.pdf; http://etd.uum.edu.my/5063/

The study sheds light on whether IFRS convergence would reduce the extent of earnings management, which in turns delivers higher quality of financial statement information to its users. Besides, the study also investigates the explanatory factors of earnings management before and after IFRS convergence. The sample of the study consists of 231 Malaysian listed companies. The time frame of the study is year 2005 (i.e., pre-IFRS convergence) and year 2006 (i.e., post-IFRS convergence). Kothari’s discretionary accruals model is used in the study to measure the extent of earnings management. By examining the extent of earnings management in two different periods (i.e., pre-IFRS convergence & post-IFRS convergence), the study finds that IFRS convergence reduces the extent of earnings management among Malaysian listed companies. In addition, the findings reveal that the explanatory factors of earnings management remain unchanged after IFRS convergence. The findings report that the proportion of non-political connected directors on boards is significant positively associated with earnings management before and after IFRS convergence. In addition, the study also finds that the proportion of independent external directors on board, board size, audit quality, foreign stock market listing and ethnicity do not have any association with earnings management before and after IFRS convergence. Among the control variables, the study reveals that company size is significant negatively associated with earnings management before IFRS convergence. Besides, the study also reports that profitability is significant positively associated with earnings management before and after IFRS convergence. This study has implications for regulatory bodies, tasking them to look into the effects of IFRS convergence on the extent of earnings management, particularly in an Asian country–Malaysia