Directors’ independence, internal audit function, ownership concentration and earnings quality in Malaysia

• Main Authors: Al-Rassas, Ahmed Hussein, Kamardin, Hasnah
• Format: Article
• Language: English
• Published: Canadian Center of Science and Education 2015
• Subjects: HD28 Management. Industrial Management
• Online Access: http://repo.uum.edu.my/14770/1/29.pdf; http://repo.uum.edu.my/14770/; http://doi.org/10.5539/ass.v11n15p244
• Institution: Universiti Utara Malaysia

Concentration of ownership in Malaysian public listed companies contributes to agency conflict between majority and minority shareholders. An effective monitoring mechanism is critical to mitigate this conflict.The study aims to examine the influence of board and audit committee independence, internal audit function and ownership concentration on earnings quality proxied by discretionary accruals.The sample of the study 508 companies listed on the Bursa Malaysia Main Market from 2009 to 2012.Two measures of discretionary accruals are used: Modified Jones model (Dechow et al., 1995); and extended Modified Jones Model (Yoon et al., 2006). Using OLS regression, results of the study suggest that audit committee independence and more investment in internal audit function are related to higher earnings quality. However, board of directors’ independence and ownership concentration are associated with lower earnings quality. The finding indicates the importance of audit committee independence in producing quality financial reporting. Consistent findings are found for most variables in both models.The findings of the study have implication on the use of measurement of discretionary accruals in earnings quality studies and corporate governance practices in Malaysia.