Real earnings management practice in family group affiliated companies

Wan Nadiah, W Abdul Rahman and Noorhayati, Mansor (2018) Real earnings management practice in family group affiliated companies. In: International Conference on Tourism, Technology and Business Management, 13 Mac 2018, Malaysia.

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Abstract

Financial reporting quality of publicly owned companies still remains a serious issue in most countries including Malaysia. Real earnings management (REM) is now becoming a topic of concern in the corporate sector due to the increasing incidence of fraud and accounting manipulations. However, to date, research on managing real earnings through business group affiliation is still scarce and largely unexplored especially in developing countries. Previous studies suggest that family group affiliation contribute to the earnings manipulation. This is a major concern in Malaysia since more than fifty per cent of its publicly own companies are dominated by family group businesses. This unique characteristic and the limited research on REM provide the main justifications for this study. This article provides a review of the literature on REM and highlights on the size and complex nature of familyaffiliated business groups in Malaysia. A model to examine the relationships between family group affiliation and REM is then proposed to bridge the gap in earnings management research. The study will cover a ten-year period (2006 until 2015) which coincides with different economic conditions in Malaysia (i.e., economic boom, recession, recovery and stabilization). These different environments may affect REM practices differently and the findings are expected to provide new insight on REM behaviour of family affiliated companies in different market conditions. Furthermore, the results may contribute to strengthening the existing regulations and provide guidance on preventive strategies and controlling mechanism in the capital market.

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