Financial reporting behaviour and firm’s economic success in Malaysia / Nor Irdawati Mahyuddin and Hairul Suhaimi Nahar

The emergence of modern corporate landscape relating to the way firms are directed and controlled creates variety of financial reporting issues. Among others, the extant empirical literature reflects diverse financial reporting behaviours due to capital market forces and economic opportunities. Empirical results in prior studies have also been inconclusive as to whether financial reporting behaviours are detrimental to firm’s economic success. Some have argued that certain financial reporting behaviours are meant to achieve better future economic success and not opportunistic in nature. Accordingly, this study aims to empirically investigate this issue in the Malaysian context. Extending the work of Gunny (2010) and Cupertino, Martinez, and Costa Jr (2016) by incorporating discretionary reporting behaviour element to provide better view of Malaysian firms’ financial reporting behaviours across 2001–2015 reporting horizon, we find that accrual-based reporting behaviour led to lower firm’s future economic success. This supports agency theory prediction that firms engage in real reporting opportunistically would negatively affect their future economic performance. This, however, does not hold true for accruals reporting behaviour. The empirical results suggest that different mechanisms of financial reporting behaviours of either discretionary or real in nature provide different implications on the firm’s economic success. The paper adds to the growing body of empirical knowledge dealing with financial reporting behaviours and the firm’s economic success from the lens of an emerging economy of Malaysia.