Association between Board Characteristics and Earnings Quality: Malaysian Evidence

Abstract

The present study examines the relationship between board characteristics and earnings quality after the amendment of the Malaysian Code on Corporate Governance in 2007. Using heteroskedasticity-corrected least square regressions upon a sample of Malaysian firms listed in 2008 and 2009, the study finds that the quality of earnings is higher among firms with independent chairmen than among those firms with non-independent chairmen. However, in contradiction to the expectations of the study, inconclusive results are found concerning board independence. The results also demonstrate that investors do not perceive board size as a good indicator of quality earnings. The findings imply that investors continue to have reservations regarding the ability of boards to enhance the quality of earnings, although efforts have been made to reform corporate governance following the Asian financial crisis. The study serves as a signal to policy makers to evaluate the importance of board mechanisms when enhancing financial reporting quality in emerging markets. Keywords: Corporate governance; board mechanisms; earnings persistence; earnings predictability; earnings informativeness, earnings quality ABSTRAK Kajian ini mengkaji hubungan antara ciri-ciri lembaga pengarah dengan kualiti pendapatan selepas Kod Tadbir Urus Korporat Malaysia dipinda pada tahun 2007. Kajian menggunakan heteroskedasticity-corrected least square regressions ke atas satu sampel yang kecil merangkumi syarikat-syarikat yang tersenarai pada tahun 2008 dan 2009. Kajian mendapati kualiti pendapatan adalah lebih tinggi bagi firma yang mana pengerusinya adalah bebas berbanding dengan yang tidak bebas. Walau bagaimanapun, keputusan bagi kebebasan lembaga pengarah adalah tidak menentu. Kajian juga mendapati yang pelabur tidak menjangka bahawa saiz lembaga pengarah adalah indikasi kepada kualiti pendapatan. Dapatan kajian ini menunjukkan yang pelabur masih ragu-ragu terhadap keupayaan lembaga pengarah dalam mempengaruhi kualiti pendapatan, walaupun terdapat inisiatif untuk membuat perubahan kepada tadbir urus syarikat selepas krisis kewangan Asia. Kajian ini memberi isyarat kepada penggubal polisi untuk menilai pentingnya mekanisme lembaga pengarah dalam meningkatkan kualiti pelaporan kewangan dalam kalangan negara membangun. Kata kunci: Tadbir urus korporat; mekanisma lembaga pengarah; ketekalan pendapatan; kebolehramalan pendapatan; kebermaklumatan pendapatan; kualiti pendapatan

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