Audit committee chairman characteristics and earnings management: The influence of family chairman. Issue 4 (18th November 2019)

• Record Type: Journal Article
• Authors: Al-Absy, Mujeeb Saif Mohsen; Ku Ismail, Ku Nor Izah; Chandren, Sitraselvi
• Is Part Of: Asia-Pacific journal of business administration. Volume 11:Issue 4(2019)
• Page Start: 339
• Page End: 370
• Publication Date: 2019-11-18
• Subjects: Malaysia -- Corporate governance -- Earnings management -- Audit committee chairman; Industrial management -- Asia -- Periodicals; Industrial management -- Pacific Area -- Periodicals; Industrial management -- Latin America -- Periodicals; 658
• DOI: 10.1108/APJBA-10-2018-0188
• Languages: English
• ISSNs: 1757-4323

Abstract

Abstract : Purpose: The purpose of this paper is to examine the influence of the characteristics of audit committee chairman (ACC) (tenure, age, gender, ethnicity, accounting expertise and directorship) on earnings management (EM) practices. Design/methodology/approach: The Jones model and modified Jones model by Dechow et al. (1995) were used to determine the discretionary accruals (DA) of 288 Malaysian listed firms with lowest positive earnings for the years 2013‒2015. Findings: The results of the ordinary least squares regression indicate that only tenure, gender and ethnicity of the ACC are associated with DA. A further test was conducted by dividing firms into two groups: firms whose boards are chaired by a family member and firms whose boards are chaired by a non-family member. The results reveal that it is possible for firms whose boards are chaired by family members to cause the corporate governance (CG) mechanisms, particularly the audit committee, to lose their effectiveness in overcoming the EM problem. In addition, robustness tests were conducted by using panel data regression, where the results were found to be similar to the original regression results. Originality/value: This study alerts policymakers, firms and their stakeholders, as well as researchers, regarding the importance of having an independent board chairman, who has no relationship with any directors or major shareholders, as this may hinder the effectiveness of CG mechanisms in curbing EM, especially in emerging countries, such as Malaysia, where it is very difficult to stop members of the family from becoming board directors.