Board Chairmen’s Involvement in the Nomination and Remuneration Committees and Earnings Management

Al-Absy, Mujeeb Saif Mohsen; Ismail, Ku Nor Izah Ku; Chandren, Sitraselvi

doi:10.14453/aabfj.v12i4.5

Cited by 20 publications

(37 citation statements)

References 42 publications

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“…The selection of these firms is based on the firms' performance using return on assets (ROA) (Burgstahler & Dichev, 1997;Roychowdhury, 2006;Yuliana, Anshori, & Alim, 2015). By following previous studies (Al-Absy, Ku Ismail, & Chandren, 2017, 2018a, 2018b, 2019a, 2019b, this study used the following two steps. First, firms with negative earnings in one or more years were excluded.…”

Section: Methodsmentioning

confidence: 99%

Corporate Governance Mechanisms, Whistle-Blowing Policy and Real Earnings Management

Al-Absy

Ismail²,

Chandren³

2019

IJFR

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The purpose of this study is to investigate whether the mechanisms of corporate governance (CG) in firms that have a policy of whistle-blowing (WBP) are more effective in mitigating real earnings management (REM) than those without WBP. To achieve this objective, the sample of the study, 288 Malaysian firms for the years 2013 to 2015, have been grouped into firms with and without WBP. In addition, the Roychowdhury Models were used to determine the abnormal levels of the REM. The results show that most of the CG mechanisms, i.e., audit committee (AC) size, AC meetings, AC independence and auditor size in firms with WBP are found to be significantly associated with low level of REM which supporting agency and resource dependence theories. However, only board independence and ownership concentration are found to be significantly associated with high level of REM. Regarding firms without WBP, most of the CG mechanisms, i.e., AC size, women in the AC, AC accenting expertise and ownership concentration, are found to be significantly associated with high level of REM. However, only board meetings, AC multiple directorships and auditor size are found to be significantly associated with low level of REM. The finding of this study suggests that having WBP in a firm could improve the monitoring role of the CG mechanisms towards mitigating REM. However, strengthening the role of WBP is still necessary to improve the efficiency of the monitoring role of CG mechanisms. Hence, there is a need for more policy and law that could encourage whistle-blowers to disclose any misconducts in firms and at the same time, prevent management from undermining the effectiveness of the whistle-blowing policy. The findings of this study will enrich the body of literature where there is no previous study has been done in respect of REM.

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Section: Methodsmentioning

confidence: 99%

Corporate Governance Mechanisms, Whistle-Blowing Policy and Real Earnings Management

Al-Absy

Ismail²,

Chandren³

2019

IJFR

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“…Where this occurs, an AC would not be able to fulfil its role effectively, which in turn may lead to managers practising unethical behaviour such as EM in companies whose board is not really independent. This argument has been empirically supported by Al-Absy et al (2018b), who found that companies whose board chairman is part of the nomination committee i.e., chairman of the committee or just a member, are significantly related to a high level of EM. Based on agency theory and the discussion above, the following hypothesis is suggested: H 1 .…”

Section: Audit Committee Independence and Hypothesesmentioning

confidence: 89%

“…The current study argues that the involvement of the board chairman either as an AC chairman or a member is not appropriate in a country where there is deference to a wellconnected or dominant person; this could result in board committees being subservient to the chairman's directives, even if the latter does not practice good CG (Satkunasingam et al, 2012). Al-Absy, Ku Ismail, and Chandren (2018b) found that EM is higher in companies whose board chairman dominates their nomination committee, either was the committee chairman or an ordinary member in the committee.…”

Section: Introductionmentioning

confidence: 90%

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Involvement of Board Chairmen in Audit Committees and Earnings Management: Evidence from Malaysia

Al-Absy¹,

Ismail²,

Chandren³

et al. 2020

JAFEB

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This paper investigates the effect of the involvement of the board chairman in the audit committee (AC) on earnings management (EM). It examines Bursa Malaysia-listed companies with the lowest positive earnings for the years 2013 to 2015. The Modified Jones Model by Kasznik (1999) was used to determine discretionary accruals. An AC that includes its board chairman as an ordinary member is associated with greater discretionary accruals. However, a board chairman who is also the chairman of the AC does not seem to influence discretionary accruals. This paper supports the agency theory and policy-makers' efforts to prevent board chairmen from sitting on ACs. It is the first study that uses the agency theory to describe the association between the board chairman's involvement in the both AC and EM. This study alerts policy-makers, stakeholders and researchers to the influence of a board chairman serving on the AC in curbing EM. Furthermore, it provides empirical evidence that the majority of Malaysian companies whose board chairmen are involved in the AC appoint the chairman as an ordinary member of the AC. This indicates that executive directors may affect such actions. Hence, more policies are needed to improve AC independence.

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“…As in earlier studies which selected suspect firms, i.e., ROA from zero to 0.01 (Ugrin, Mason, & Emley, 2017) and from zero to 0.005 (Roychowdhury, 2006;Yuliana, Anshori, & Alim, 2015), firms with one or more years of negative ROA were omitted. Then, the average ROA for each firm was calculated (ROA for 2013, 2014, and 2015, divided by 3) and placed in ascending order to identify the 300 firms with lower than average ROA (Al-Absy, Ismail, & Chandren, 2021;Al-Absy et al, 2020;Al-Absy, Ku Ismail, & Chandren, 2018, 2019a, 2019b, 2019c, 2019d. 18 firms were eliminated from the sample because of incomplete data, leading to a final sampling size of 282 firms, or 846 firm-observations over the three years.…”

Section: Sample Selectionmentioning

confidence: 99%

Gender Diversity and Financial Stability: Evidence from Malaysian Listed Firms

Al-Absy¹,

Almaamari²,

Alkadash³

et al. 2020

JAFEB

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This study examines the relationship between gender diversity (women on the board and women on the audit committee) and a firm's financial stability. The ordinary least square analysis was used to determine the relationship. To measure the financial stability of Malaysian suspect firms, i.e., firms with the lowest positive earnings, the Altman (1993) Z-Score measurement was utilized. The results indicate that women on the board are significantly and negatively associated with the firm's financial stability. That is, they are related to low financial stability, which contradicts the agency and resource dependence theories. Regarding women directors on the audit committee, there is no significant relationship with financial stability, meaning that they cannot protect the company against financial distress. These results are robust and do not change when using different measurements of gender diversity, one-year lag of independent variables, and other methods of analysis, namely random effect panel data. This study is the first to alert policymakers, stakeholders, researchers, and society in general to the need to re-evaluate and strengthen the role of women directors in improving firms' financial stability, particularly in emerging economies like Malaysia.

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Board Chairmen’s Involvement in the Nomination and Remuneration Committees and Earnings Management

Cited by 20 publications

References 42 publications

Corporate Governance Mechanisms, Whistle-Blowing Policy and Real Earnings Management

Corporate Governance Mechanisms, Whistle-Blowing Policy and Real Earnings Management

Involvement of Board Chairmen in Audit Committees and Earnings Management: Evidence from Malaysia

Gender Diversity and Financial Stability: Evidence from Malaysian Listed Firms

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