Articlediamond2015

How Effective is Board Independence to the Monitoring of Earnings Manipulation?

Mohd Fazrin Busirin · Nurul Azlin Azmi · Nor Balkish Zakaria

32 citations0/0 files storedProcedia Economics and Finance

No readable copy stored yet — this record is metadata only.

No open-access location is known for this record yet.

Literature note Cite in a project Citation map

Auditing, Earnings Management, Governance Corporate Finance and Governance Corporate Governance and Financial Management

Abstract

Earnings manipulation has become an effort of the firms to cosmetically conceal their earnings in order to achieve desired motive. The recent collapse of some large companies resulting partially from accounting manipulation has created an argument in term of the effectiveness of corporate governance mechanism toward investor protection. Effective corporate governance plays a key role to mitigate earnings manipulation. Therefore, boards have fiduciary responsibility to monitor the management to protect shareholders’ interest. They also become an essential element of corporate governance and are considered the main internal mechanism in reducing earning manipulation. The proportion of board independence are also a crucial part to reduce the tendency of earnings manipulation due to their ability to withstand pressure from the firm to manipulate earnings and are better able to monitor earnings process. Therefore, the purpose of this study is to examine the relationship between board independence and earnings manipulation by using Beneish profit model. This study employed the data from 372 Public Listed Companies in Malaysia from 2010 until 2013. The result of this study found that board independence has negative and significant relationship with earnings manipulation. These results indicate that higher number of independent directors will reduce the tendency of earnings manipulation. The finding of this study will be fruitful to industry by maintaining the appropriate numbers of directorship (independent non-executive directors) in the companies. Besides that, it may also assist the statutory bodies to strengthen and reinforce the composition of board of director in the companies.

Paper brief

Loading…

Cite this work

Citation unavailable for this work.

BibTeX RIS CSL-JSON

No public copy is stored for this record, so only the metadata is cited.

Citations in this library

Citation map →

Stored only when both papers are in the corpus — 32 citations exist upstream.

References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1983Separation of Ownership and Control 2003Earnings management and investor protection: an international comparison 1999A Review of the Earnings Management Literature and Its Implications for Standard Setting 2002Audit committee, board of director characteristics, and earnings management 1997An Empirical Analysis of the Relation between the Board of Director Composition and Financial Statement Fraud 1994Debt covenant violation and manipulation of accruals 1990Positive Accounting Theory: A Ten Year Perspective.

Cited by

2022Managerial ability and informative earnings management: the role of CEO-commissioner relationship and board independence 2023Board structure and the likelihood of financial statement fraud. Does audit fee matter? Evidence from manufacturing firms in the East Africa community 2022Internal corporate governance mechanisms and earnings manipulation practices in MENA countries

Explore the map →

Papers that cite the same references — the relational fallback while embeddings are still backfilling.

Imported from OpenAlex (CC0) — nothing here is generated.