Management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of Malaysian public listed companies (PLCs) / Alfiatul Rohmah Mohamed Hussain

This study investigates the factors that lead to the occurrence of accounting misstatements. Specifically, this study examines the effect of financial and non-financial measures management motives, as well as the internal and external governance of monitoring mechanisms and political connections on...

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Main Author:	Mohamed Hussain, Alfiatul Rohmah
Format:	Thesis
Language:	English
Published:	2019
Online Access:	https://ir.uitm.edu.my/id/eprint/82277/1/82277.pdf
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id	my-uitm-ir.82277
record_format	uketd_dc
spelling	my-uitm-ir.822772024-01-31T04:33:40Z Management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of Malaysian public listed companies (PLCs) / Alfiatul Rohmah Mohamed Hussain 2019 Mohamed Hussain, Alfiatul Rohmah This study investigates the factors that lead to the occurrence of accounting misstatements. Specifically, this study examines the effect of financial and non-financial measures management motives, as well as the internal and external governance of monitoring mechanisms and political connections on the occurrence of accounting misstatements in Malaysia. The financial measures is proxied by financial distress, market-related incentive, stock-option based compensation, related party transactions and earnings management, while non-financial measures is proxied by abnormal change in the number of employees, existence of founder on the firm’s board and managerial ownership. The internal governance is proxied by board effectiveness, family ownership, whereas external governance is proxied by audit quality and foreign ownership. In order to see the impact of management motives, monitoring mechanisms and political connection on the occurrence of accounting misstatements, 194 non-financial firms listed on the Main Market of Bursa Malaysia over the period 2005-2013 were selected, with complete data for management motives, monitoring mechanisms and political connection variables. The study uses cross-sectional logistic regression model to analyse the relationship between various factors of financial statement restatements and the occurrence of accounting misstatements. The result from multivariate analysis is validated using the bootstrap approach. From the regression analysis conducted, the study finds that the corporate environment most likely to lead to misstatement is characterized by factors that focus on the adoption of stock option-based compensation, lower audit quality and with the presence of political connections. Interestingly, the study finds that foreign investors effectively monitor the politically connected firms given the evidence that there is a negative and significant association between the interactions of foreign ownership with political connection, and the occurrence of misstatements. Using multinomial logistic regression in the additional analyses, this study finds evidence that financial distress, earnings management through accounts receivables and higher managerial ownership lead to revenue related restatement. The absence of the founder on the firm’s board, lower foreign ownership and high political connection lead to expense related restatement. The adoption of stock option-based compensation, poor board effectiveness and audit quality, and high foreign ownership lead to other types of restatements. Yet, the study finds that earnings-to-price, related party transactions and abnormal change in the number of employees are not significant determinants of accounting misstatements in Malaysia. Overall, this study contributes to the extant literature by evidencing that the occurrences of accounting misstatements depend on the culture of an organization that tends to report favourable earnings, while taking into account the unique institutional context of an Asian country. Finally, it is hoped that the study will benefit and help the regulatory bodies in improving the rules and laws, the firms in formulating the best corporate strategies and improving their system controls, and the users of the financial information, especially the investors in making their financial decisions. 2019 Thesis https://ir.uitm.edu.my/id/eprint/82277/ https://ir.uitm.edu.my/id/eprint/82277/1/82277.pdf text en public phd doctoral Universiti Teknologi MARA (UiTM) Faculty of Accountancy Mohd Sanusi, Zuraidah
institution	Universiti Teknologi MARA
collection	UiTM Institutional Repository
language	English
advisor	Mohd Sanusi, Zuraidah
description	This study investigates the factors that lead to the occurrence of accounting misstatements. Specifically, this study examines the effect of financial and non-financial measures management motives, as well as the internal and external governance of monitoring mechanisms and political connections on the occurrence of accounting misstatements in Malaysia. The financial measures is proxied by financial distress, market-related incentive, stock-option based compensation, related party transactions and earnings management, while non-financial measures is proxied by abnormal change in the number of employees, existence of founder on the firm’s board and managerial ownership. The internal governance is proxied by board effectiveness, family ownership, whereas external governance is proxied by audit quality and foreign ownership. In order to see the impact of management motives, monitoring mechanisms and political connection on the occurrence of accounting misstatements, 194 non-financial firms listed on the Main Market of Bursa Malaysia over the period 2005-2013 were selected, with complete data for management motives, monitoring mechanisms and political connection variables. The study uses cross-sectional logistic regression model to analyse the relationship between various factors of financial statement restatements and the occurrence of accounting misstatements. The result from multivariate analysis is validated using the bootstrap approach. From the regression analysis conducted, the study finds that the corporate environment most likely to lead to misstatement is characterized by factors that focus on the adoption of stock option-based compensation, lower audit quality and with the presence of political connections. Interestingly, the study finds that foreign investors effectively monitor the politically connected firms given the evidence that there is a negative and significant association between the interactions of foreign ownership with political connection, and the occurrence of misstatements. Using multinomial logistic regression in the additional analyses, this study finds evidence that financial distress, earnings management through accounts receivables and higher managerial ownership lead to revenue related restatement. The absence of the founder on the firm’s board, lower foreign ownership and high political connection lead to expense related restatement. The adoption of stock option-based compensation, poor board effectiveness and audit quality, and high foreign ownership lead to other types of restatements. Yet, the study finds that earnings-to-price, related party transactions and abnormal change in the number of employees are not significant determinants of accounting misstatements in Malaysia. Overall, this study contributes to the extant literature by evidencing that the occurrences of accounting misstatements depend on the culture of an organization that tends to report favourable earnings, while taking into account the unique institutional context of an Asian country. Finally, it is hoped that the study will benefit and help the regulatory bodies in improving the rules and laws, the firms in formulating the best corporate strategies and improving their system controls, and the users of the financial information, especially the investors in making their financial decisions.
format	Thesis
qualification_name	Doctor of Philosophy (PhD.)
qualification_level	Doctorate
author	Mohamed Hussain, Alfiatul Rohmah
spellingShingle	Mohamed Hussain, Alfiatul Rohmah Management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of Malaysian public listed companies (PLCs) / Alfiatul Rohmah Mohamed Hussain
author_facet	Mohamed Hussain, Alfiatul Rohmah
author_sort	Mohamed Hussain, Alfiatul Rohmah
title	Management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of Malaysian public listed companies (PLCs) / Alfiatul Rohmah Mohamed Hussain
title_short	Management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of Malaysian public listed companies (PLCs) / Alfiatul Rohmah Mohamed Hussain
title_full	Management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of Malaysian public listed companies (PLCs) / Alfiatul Rohmah Mohamed Hussain
title_fullStr	Management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of Malaysian public listed companies (PLCs) / Alfiatul Rohmah Mohamed Hussain
title_full_unstemmed	Management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of Malaysian public listed companies (PLCs) / Alfiatul Rohmah Mohamed Hussain
title_sort	management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of malaysian public listed companies (plcs) / alfiatul rohmah mohamed hussain
granting_institution	Universiti Teknologi MARA (UiTM)
granting_department	Faculty of Accountancy
publishDate	2019
url	https://ir.uitm.edu.my/id/eprint/82277/1/82277.pdf
_version_	1794191928823119872

Management motives, monitoring mechanisms and political connections: critical factors influencing accounting misstatements of Malaysian public listed companies (PLCs) / Alfiatul Rohmah Mohamed Hussain

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