Diversity of internal governance and financial reporting quality: post-GFC of an emerging market

Anuar Sarun

QR Code Link :
Type :	article
Subject :	L Education
Main Author :	Anuar Sarun
Additional Authors :	Nooraisah Katmon Anis Suriati Ahmad Zam Zuriyati Mohamed
Title :	Diversity of internal governance and financial reporting quality: post-GFC of an emerging market

Place of Production :	Tanjong Malim
Publisher :	Fakulti Pengurusan dan Ekonomi
Year of Publication :	2019
Corporate Name :	Universiti Pendidikan Sultan Idris

Abstract : Universiti Pendidikan Sultan Idris

We examine whether wide-ranging board diversity reduce earnings management from the emerging market of Malaysia. We contribute to the prior literature in several ways. First, while previous literature are mainly focusing on the developing economy, our study is the first that examine the relationship between all-inclusive set of diverse board characteristics and earnings management from the emerging economy. Second, we concentrate to the post-GFC period, where we intentionally avoid the GFC, a situation where managerial opportunistic behaviour to engage in earnings management is more prevalent due to economic reason. Third, we cover the potential complementary or substitutive effects of board diversity characteristics on earnings management. Using 1400 listed firms in emerging market of Malaysia over the period of 2009-2015, in contrast to our prediction, our findings demonstrated that the relationship between board diversity characteristics and earnings management in the Malaysia is mixed. We therefore conclude that the diversity mechanism that work well in the developing countries might not necessarily compatible to the emerging economy such as Malaysia

References

1. Abdullah, S. N., Ismail, K. N. I. K., &Nachum, L. (2016). Does having women on boards create value? The impact of societal perceptions and corporate governance in emerging markets. Strategic Management Journal, 51(37), 466–476. https://doi.org/10.1002/smj

2. Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance☆. Journal of Financial Economics, 94(2), 291–309. https://doi.org/10.1016/j.jfineco.2008.10.007

3. Aina, K. (2013). Board of directors and corporate governance in. International Journal of Business and Finance Management Research, 1(October 2012), 21–34.

4. Alvarado, N. R., Briones, J. L., & de Fuentes Ruiz, P. (2011). Gender diversity on Boards of Directors and business success. Investment Management and Financial Innovations, 8(1), 199–209.

5. Anila, K. (2014). Association between gender diversity in board composition and firm performance: Empirical evidence from Finland. University of Oulu.

6. Ansari, S., & Munir, K. (2008). How valuable is a piece of the spectrum ? Determination of value in external resource acquisition. Industrial and Corporate Change, 2, 301–333. https://doi.org/10.1093/icc/dtn004

7. Ararat, M., Aksu, M., & Cetin, A. T. (2010). Impact of Board Diversity on Boards ’ Monitoring Intensity and Firm Performance : Evidence from the Istanbul Stock Exchange. SSRN Electronic Journal, 90(216).

8. Arun, T. G., Almahrog, Y. E., & Ali Aribi, Z. (2015a). Female directors and earnings management: Evidence from UK companies. International Review of Financial Analysis, 39(May), 137–146. https://doi.org/10.1016/j.irfa.2015.03.002

9. Arun, T. G., Almahrog, Y. E., & Ali Aribi, Z. (2015b). Female directors and earnings management: Evidence from UK companies. International Review of Financial Analysis, 39, 137–146. https://doi.org/10.1016/j.irfa.2015.03.002

10. Barney, J. B. (2001). Resource-based theories of competitive advantage: A ten-year retrospective on the resource-based view. Journal of Management, 27(6), 643–650. https://doi.org/10.1177/014920630102700602

11. Bathula, H. (2008). Board Characteristics and Firm Performance : Evidence from New Zealand. AUT University New Zealand.

12. Bear, S., Rahman, N., & Post, C. (2010). The Impact of Board Diversity and Gender Composition on Corporate Social Responsibility and Firm Reputation. Journal of Business Ethics, 97(2), 207–221. https://doi.org/10.1007/s10551-010-0505-2.

13. Ben-Amar, W., Chang, M., &McIlkenny, P. (2015). Board Gender Diversity and Corporate Response to Sustainability Initiatives: Evidence from the Carbon Disclosure Project. Journal of Business Ethics, 125(3), 497–512. https://doi.org/10.1007/s10551-015-2759-1

14. Boulouta, I. (2013). Hidden Connections: The Link Between Board Gender Diversity and Corporate Social Performance. Journal of Business Ethics, 113(2), 185–197. https://doi.org/10.1007/s10551-012-1293-7

15. Bowman, C., &Ambrosini, V. (2003). What does value mean and how is it created, maintained and destroyed? In Academy of Management Annual Meeting (pp. 1–6). Seattle, Washington.

16. Carter, D., D’Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The Gender and Ethnic Diversity of US Boards and Board Committees and Firm Financial Performance. Corporate Governance: An International Review, 18(5), 396–414. https://doi.org/10.1111/j.1467- 8683.2010.00809.x

17. Cormier, D., & Martinez, I. (2006). The association between management earnings forecasts, earnings management, and stock market valuation: Evidence from French IPOs. The International Journal of Accounting, 41(3), 209–236. https://doi.org/10.1016/j.intacc.2006.07.004

18. Dauth, T., Pronobis, P., &Schmid, S. (2017). Exploring the link between internationalization of top management and accounting quality: The CFO’s international experience matters. International Business Review, 26(1), 71–88. https://doi.org/10.1016/j.ibusrev.2016.05.007

19. Dechow, P. M., &Schrand, C. M. (2004). Earnings Quality. The Research Foundation of CFA Institute.

20. Duong, L., & Evans, J. (2016). Gender differences in compensation and earnings management: Evidence from Australian CFOs. PacificBasin Finance Journal, 40, 17–35. https://doi.org/10.1016/j.pacfin.2016.07.004

21. Duztas, S. (2008). Corporate governance: The effects of board characteristics, information technology maturity and tranparency on company performance. Yeditepe University.

22. Farag, H., &Mallin, C. (2017). Board diversity and financial fragility: Evidence from European banks. International Review of Financial Analysis, 49, 98–112. https://doi.org/http://dx.doi.org/10.1016/j.irfa.2016.12.002

23. Fauzi, F., & Locke, S. (2012). Board structure, ownership structure and firm performance: a study of New Zealand listed-firms. Asian Academy of Management Journal of Accounting and Finance, (1976).

24. Goergen, M., Limbach, P., &Scholz, M. (2015). Mind the gap: The age dissimilarity between the chair and the CEO. Journal of Corporate Finance, 35, 136–158. https://doi.org/10.1016/j.jcorpfin.2015.08.011

25. Gul, F. a., & Leung, S. (2004). Board leadership, outside directors’ expertise and voluntary corporate disclosures. Journal of Accounting and Public Policy, 23(5), 351–379. https://doi.org/10.1016/j.jaccpubpol.2004.07.001

26. Gul, F. A., Munir, S., & Zhang, L. (2016). Ethnicity, politics and firm performance: Evidence from Malaysia. Pacific-Basin Finance Journal, 40, 115–129. https://doi.org/10.1016/j.pacfin.2016.10.005

27. Hafsi, T., &Turgut, G. (2013). Boardroom Diversity and its Effect on Social Performance : Conceptualization and Empirical Evidence. Journal of Business Ethics, 112, 463–479. https://doi.org/10.1007/s10551-012-1272-z

28. Hahn, P. D., &Lasfer, M. (2016). Impact of foreign directors on board meeting frequency. International Review of Financial Analysis, 46, 295–308. https://doi.org/10.1016/j.irfa.2015.11.004

29. Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a refection of its top managers. The Academy of Management Review, 9(2), 193–206.

30. Haniffa, R. M., & Cooke, T. E. (2005). The impact of culture and governance on corporate social reporting. Journal of Accounting and Public Policy, 24(5), 391–430. https://doi.org/10.1016/j.jaccpubpol.2005.06.001

31. Hasnan, S., Rahman, R. A., &Mahenthiran, S. (2013). Management Motive, Weak Governance, Earnings Management, and Fraudulent Financial Reporting: Malaysian Evidence. Journal of International Accounting Research, 12(1), 1–27. https://doi.org/10.2308/jiar-50353

32. Holm, C., &Scholer, F. (2010). Reduction of asymmteric information through corporate governance mechanism - the importance of ownership dispersion and exposure toward the international capital market. Corporate Governance: An International Review, 18(1), 32–47.

33. Husillos, J., & Alvarez, M. (2008). A stakeholder-theory approach to environmental disclosures by small and medium enterprises ( smes ). RC-SAR, 11(1), 125–156.

34. Jensen, C., &Meckling, H. (1976). Theory of the firm: managerial behaviour, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360.

35. Knyazeva, A., Knyazeva, D., &Masulis, R. D. (2013). The supply of corporate directors and board independence. Review of Financial Studies, 26, 1561–1605.

36. Krishnan, G. V., & Parsons, L. M. (2008). Getting to the bottom line: An exploration of gender and earnings quality. Journal of Business Ethics, 78(1–2), 65–76. https://doi.org/10.1007/s10551-006-9314-z

37. La Porta, R., Lopez de Silanes, F., Shleifer, A., &Vishny, R. W. (2000). Investor Protection and Corporate Governance. Journal of Financial Economics, 58(March), 3–27. https://doi.org/10.2139/ssrn.183908

38. Labelle, R., Gargouri, R. M., &Francoeur, C. (2010). Ethics, Diversity Management, and Financial Reporting Quality. Journal of Business Ethics, 93(2), 335–353. https://doi.org/10.1007/s10551-009-0225-7

39. Lazzaretti, K., Godoi, C. K., Camilo, S. P. O., &Marcon, R. (2013). Gender diversity in the boards of directors of Brazilian businesses. Gender in Management: An International Journal, 28(2), 94–110. https://doi.org/10.1108/17542411311303239

40. Luo, J., Xiang, Y., & Huang, Z. (2017). Female directors and real activities manipulation: Evidence from China. China Journal of Accounting Research. https://doi.org/10.1016/j.cjar.2016.12.004

41. Man, C., & Wong, B. (2013). Corproate Governance And Earnings Management : A survey of literature. The Journal of Applied Business Research, 29(2), 391–418.

42. Mathisen, G. E., Ogaard, T., &Marnburg, E. (2012). Women in the Boardroom: How Do Female Directors of Corporate Boards Perceive Boardroom Dynamics? Journal of Business Ethics, 116(1), 87–97. https://doi.org/10.1007/s10551-012-1461-9

43. Miletkov, M., Poulsen, A., &Wintoki, M. B. (2014). A multinational study of foreign directors on non-US corporate boards. SSRN Electronic Journal.

44. Muttakin, M. B., Khan, A., &Subramaniam, N. (2015). Firm characteristics , board diversity and corporate social responsibility Evidence from Bangladesh. Pacific Accounting Review, 27(3), 53–372.

45. Pappas, K., Leventis, S., &Owusu-Ansah, S. (2011). Earnings Management and Corruption: Evidence from the European Union.

46. Peni, E., &Vähämaa, S. (2010). Female executives and earnings management. Managerial Finance, 36(7), 629–645. https://doi.org/10.1108/03074351011050343

47. Pfeffer, J., &Salancik, G. R. (1978). The external control of organizations: A resource dependence perspective. Stanford, CA: Stanford Business Books.

48. Post, C., Rahman, N., &Rubow, E. (2011). Green Governance: Boards of Directors’ Composition and Environmental Corporate Social Responsibility. Business & Society, 50(1), 189–223. https://doi.org/10.1177/0007650310394642

49. Prihatiningtias, Y. W. (2012). Gender diveristy in the boardroom and firm performance: evidience from Indonesian publicly listed financial firms. University of Canberra.

50. Santoso, R. D., &Rakhman, F. (2013). CEO Characteristics and Earnings Management. The Indonesian Journal of Accounting Research, 16(3), 181–196.

51. Srinidhi, B., Gul, F. a., &Tsui, J. (2011). Female Directors and Earnings Quality*. Contemporary Accounting Research, 28(5), 1610–1644. https://doi.org/10.1111/j.1911-3846.2011.01071.x

52. Sun, J., Liu, G., &Lan, G. (2010). Does Female Directorship on Independent Audit Committees Constrain Earnings Management? Journal of Business Ethics, 99(3), 369–382. https://doi.org/10.1007/s10551-010-0657-0

53. Transparency International. (2015). Corruption perception index 2015. Retrieved from http://www.transparency.org/cpi2015

54. Troy, C., Smith, K. G., & Domino, M. a. (2011). CEO demographics and accounting fraud: Who is more likely to rationalize illegal acts? Strategic Organization, 9(4), 259–282. https://doi.org/10.1177/1476127011421534

55. Wernerfelt, B. (1984). A Resource-based View of the Firm. Strategic Management Journal, 5, 171–180.

56. World Bank. (2016). GINI index (World bank estimate). Retrieved from http://data.worldbank.org/indicator/SI.POV.GINI?order=wb api_data_value_2012+wbapi_data_value%26sort=asc

This material may be protected under Copyright Act which governs the making of photocopies or reproductions of copyrighted materials.
You may use the digitized material for private study, scholarship, or research.

Back to previous page