ISSN: 2225-8329
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Accounting loopholes coupled with rooms for managerial discretion provide the opportunities for earnings management to be exploited. Earnings management usually reflects the managerial opportunism and without proper and effective governance mechanism, it could be detrimental to the firms. Among the governance mechanisms heavily relied upon is the function of the board of directors. However, the quality of the boardroom could be tainted by the intervention of political influence. Thus, the current study examines the impact of political influence and governance mechanisms on the financial reporting quality among Malaysian listed firms. Financial reporting quality is proxied by the measurement of real earnings management. This study uses pool data consisting of 3,255 firm-year observations. The research sample comprises firms listed on the Main Board of Bursa Malaysia from 2014 to 2018. The findings are robust after controlling for the endogeneity. In particular, it was found that boardroom diversity, audit quality and proxies for political influence affect the quality of financial reporting. From the findings, it can be observed that one proxy of political influence (government ownership) positively affected the level of financial reporting quality though earlier expectations proposed for a negative relationship. Since political influence is not a single construct, current findings show that firms behave differently according to the type of political influence being exerted. Future studies may include AEM and REM for comparative purposes. Focusing and including other indicators, such as audit committee and risk management, may also enhance the corporate governance literature.
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In-Text Citation: (Ghazali et al., 2022)
To Cite this Article: Ghazali, A. W., Shafie, N. A., Sanusi, Z. M., & Zakaria, N. B. (2022). Political Influence, Governance Mechanisms and Financial Reporting Quality: A Study on The Earnings Management Practices of Malaysian Listed Firms. International Journal of Academic Research in Accounting Finance and Management Sciences, 12(3), 474–496.
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