The relationship among audit quality, earnings management, and financial performance of Malaysian public listed companies

• Main Authors: Cheong, Pei Ching, Teh, Boon Heng, Ong, Tze San, Hong, Yong Hoe
• Format: Article
• Language: English
• Published: Faculty of Economics and Management, Universiti Putra Malaysia 2015
• Online Access: http://psasir.upm.edu.my/id/eprint/41721/1/The%20Relationship%20among%20Audit%20Quality.pdf; http://psasir.upm.edu.my/id/eprint/41721/; http://econ.upm.edu.my/ijem/vol9no1/11.%20The%20Relationship%20among%20Audit%20Quality.pdf
• Institution: Universiti Putra Malaysia

This study aims to investigate the relationship among audit quality, earnings management, and financial performance among public listed companies in Malaysia. Sample companies were randomly selected from the Industrial Products and Consumer Products industry listed on the Main Board of Bursa Malaysia during the time period of 2008 to 2013. The findings indicate that audit quality does not actually constrain earnings management practices in Industrial Products and Consumer Products companies. This may be due to the difference between the audit environment in Malaysia and that in other developed countries. On the other hand, high audit quality can contribute to better company financial performance, since large-scale audit firms are always perceived to have higher audit quality that can increase the confidence of investors. However, when earnings management is added as a mediating variable, it mediates the relationship between audit quality and financial performance. In other words, the audit quality that is delivered by either Big Four audit firms or non-Big Four audit firms does not actually improve financial performance when earnings manipulation activities are conducted by the management divisions of these firms.