Earnings management, corporate governance and corporate performance among Malaysian listed companies

Abstract

There are several explanations for lack of transparency regarding financial reporting however the most significant is earnings management activities that managers follow. Admittedly, managers manipulate accounting information by using EM (Earnings Management) practices to achieve certain results. Corporate governance, which its primary objective is to spot possible structures in which a corporation's shareholders have greater power and control over managers to protect and further their rights, and it has recently brought an interesting topic to researchers and policymakers around the world. Most research has emphasized the relationship between corporate governance and company performance, but still, only a few investigations have looked at the moderator characteristic of corporate governance on corporate performance from different perspectives. This study aims at investigating whether corporate governance, utilizing data from listed companies in Bursa Malaysia, impacts the relationship between earnings management and the firm ’s performance. This study utilizes panel data analysis and uses FTSE Russell data by applying the intersection method to the constituents of the FTSE Top 100 Bursa Malaysia from 2011 to 2015. The findings show that DAs have a considerable impact on the ROA, ROE, Tobin's Q and EVA of companies in a poor governance system. This research reveals that managers in weakly managed companies are far more likely to misuse accounting powers than in well managed companies, leading to a decline in corporate performance. Managers are likely utilizing DAs to modify the financial profits; however, this produces a rather more significant reversing impact in corporate interest in the period ahead. Likewise, DAs inside an efficient governance structure are strongly and substantially related to firm performance.