Camouflaging financial distress with earnings management: a case of industrial product sector of Malaysian bourse / Siti Sarah Khazalle and Mohamad Ezrien Mohamad Kamal

Khazalle, Siti Sarah and Mohamad Kamal, Mohamad Ezrien (2019) Camouflaging financial distress with earnings management: a case of industrial product sector of Malaysian bourse / Siti Sarah Khazalle and Mohamad Ezrien Mohamad Kamal. In: ICAM2019 – International Conference on Accounting and Management. Faculty of Accountancy, Universiti Teknologi MARA Puncak Alam, Selangor, p. 111. ISBN 978-967-17038-0-9

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Abstract

Earnings Management is prevalent among corporations, resulting to misleading information disclosed on financial statements. By adopting agency theory argument, in line with fulfilling shareholders expectations on financial performance while securing their position and interest within the company, management may be influenced to engage earnings management when the actual financial outcome is in financial distress. Hence, this study attempts to identify whether companies listed on Industrial Product sector of Malaysian Bourse experienced financial distress condition and embark on earnings management. It also examines potential relationship between financial distress conditions and earnings management within the context of companies listed within Industrial Product sector of Malaysian Bourse in 2016 and 2017. Industrial Product sector was chosen as focus of this study due to its critical position in nation’s transformation to become developed country and as the main contributor to the nation’s GDP with largest market capitalization value in local bourse. Financial distress was proxied by Altman Z score and earnings management by discretionary accruals as per Kothari (2005). The study was conducted using the quantitative statistical method by running multiple regressions in SPSS version 23. The study also included three control variables, such as firm size, financial leverage and free cash flow from operation. The sample of this study comprised of 454 firms of Industrial Products Sector, listed on Malaysian Bourse from 2016 to 2017. The result revealed significant negative relationship between financial distress and earnings management by companies within Industrial Product sector. Financial leverage and free cash flow from operation have inverse relationship with earnings management, while firm size has a positive relationship with earnings management. This also means management of Industrial Product Sector companies engage earnings management when their financial condition is not in distress, hence they are not using earnings management to conceal financial distress condition. Instead, they may use earnings management to leverage on their non-distress financial condition to attain better share price performance and financing arrangement.

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Item Type: Book Section
Creators:
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Khazalle, Siti Sarah
UNSPECIFIED
Mohamad Kamal, Mohamad Ezrien
UNSPECIFIED
Subjects: H Social Sciences > HG Finance > Financial management. Business finance. Corporation finance
H Social Sciences > HG Finance > Financial management. Business finance. Corporation finance > Earnings management
H Social Sciences > HG Finance > Financial leverage
Divisions: Universiti Teknologi MARA, Selangor > Puncak Alam Campus > Faculty of Accountancy
Page Range: p. 111
Item ID: 44254
Uncontrolled Keywords: Discretionary accruals; Earnings management; Financial distress; Financial leverage; Firm’s size; Free cash flow from operation
URI: https://ir.uitm.edu.my/id/eprint/44254

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44254

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