Article2012

Management Motive, Weak Governance, Earnings Management, and Fraudulent Financial Reporting: Malaysian Evidence

Suhaily Hasnan · Rashidah Abdul Rahman · Sakthi Mahenthiran

125 citations0/0 files storedJournal of International Accounting Research

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Auditing, Earnings Management, Governance Corporate Governance and Financial Management Benford’s Law and Fraud Detection

Abstract

ABSTRACT This study examines ten factors associated with fraudulent financial reporting (FFR) in Malaysian publicly listed companies. We hypothesize that three factors proxy for management rationalization, four factors proxy for management motives, and three factors proxy for the opportunity to commit fraud. Our sample consists of 53 fraud firms convicted of securities fraud and 53 no-fraud firms, all of which were listed on the Bursa Malaysia and have a complete set of data from 1996–2007. With regard to rationalization, we find that prior violations and founders on the board are positively and significantly associated with FFR. With regard to motive, we find that financial distress is positively and significantly associated with FFR while family ownership is negatively and significantly associated with FFR. Our opportunity for fraud proxies, multiple directorships, and audit quality are positively and significantly associated with FFR. Additionally, we find evidence of earnings management in the years leading up to FFR.

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1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 1997A Survey of Corporate Governance 1980Agency Problems and the Theory of the Firm 2005Performance matched discretionary accrual measures 1988Management ownership and market valuation 1995Detecting Earnings Management.1985The Structure of Corporate Ownership: Causes and Consequences

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