The influence of corporate governance mechanisms and employee stock options on accretive share buyback in Malaysia

In recent decades, there has been a notable and growing practice of real earnings management practiced through accretive share buybacks. Corporate governance is recognised as a significance mechanism in confirming the credibility of financial reporting quality. Overall, this study examines accretive share buybacks as a mechanism for real earnings management. The objectives of this study are to investigate the influence of corporate governance mechanisms: board of directors (BOD) effectiveness (independence, size, meetings and financial expertise), audit committee (AC) effectiveness (independence, size, meetings and financial expertise), audit quality and ownership structure (family, managerial, foreign) on accretive share buybacks. Considering the stock options hypothesis, this study also investigates the impact of employee stock options (ESOS) on accretive share buybacks. The study utilised 235 firm-year observations of non-financial firms listed on the Bursa Malaysia that were involved in accretive share buybacks over the years 2010 to 2015. By using panel data, the findings of the main analysis indicate that AC effectiveness and family ownership was negatively related to accretive share buybacks, but the effectiveness of the BOD and audit quality was positively associated with accretive share buybacks. The findings also show that ESOS were positively related to the accretive share buybacks, and no relationship was revealed between managerial ownership and foreign ownership with accretive share buybacks. The unexpected result of BOD effectiveness revealed the negative role of concentrated ownership in the monitoring functions of the BOD. This study contributes to a better understanding of corporate governance practices and accretive share buyback activities by Malaysian listed firms. The results indicate that firms should improve the effectiveness of corporate governance mechanisms (BOD, AC, audit quality and ownership structure) to enhance financial reporting quality. Hopefully, this study will provide a reference point for relevant parties to improve the applicable regulations and corporate governance schemes

Employee stock options and real earnings management through accretive share buyback in Malaysia

We examine the association between employee stock options and real earnings management through accretive buyback programs. Our study uses unbalanced panel logistic estimation model for a sample of 601 firms’ observations that involved in accretive share buyback over the period 2010-2015. The outcomes reveal that stock options exercised by insiders (executives and employees) are associated with high likely to engage in accretive share buyback activities. The results also provide evidence that a large percentage of the independent directors serving the board constrain real earnings management by engaging in accretive share buybacks. Our study contributes to the debate on stock options, and their impact on accretive buyback programs to manage reported EPS. Our findings provide insight to investors and the policymakers that managers holding stock options have more incentive to manage EPS through accretive share buyback activities. Academic researchers could extend this study by separating among executive and employees’ stock options and between exercisable and non-exercisable stock options

Investment opportunities, corporate governance quality, and firm performance in the UAE

Purpose – This paper examines the influence of investment opportunities on firm performance and evaluates corporate governance practices in the United Arab Emirates (UAE) to determine whether corporate governance quality moderates that influence. Design/methodology/approach – A fixed-effects regression was employed to examine the influence of investment opportunities on firm performance and the role of corporate governance quality as a moderator forall listed firms on the Abu Dhabi Stock Exchange (ADX) and the Dubai Financial Market (DFM). We examined 501 firm-year observations for the period when the corporate governance code in the UAE was coming into force, from 2008 to 2012. Findings – The regression results indicate that investment opportunities have a negative influence on firm performance. The corporate governance index used here shows that the level of corporate governance practiced in the UAE is weak. We also find that strong corporate governance ameliorates the negative influence of investment opportunities, which supports our hypotheses. The sub-indices of corporate governance that matter the most for moderating investment opportunities are board functioning and ethics.Practical implications – The results of this paper reflect the need to examine corporate governance in the context of the external environment represented by investment opportunities in our study. The findings could raise awareness of the importance of strong corporate governance practices, not only to directly improve firm performance but also through its influence on external variables. Legislators, regulators and other interested parties could use these results to examine practices in the UAE following the implementation of the corporate governance code.Originality/value – This study contributes to the literature by evaluating the role that corporate governance quality and its components could play in firm performance and indirectly moderating other external factors (such as investment opportunities)

Employee stock options and real earnings management through accretive share buyback in Malaysia

We examine the association between employee stock options and real earnings management through accretive buyback programs.Our study uses unbalanced panel logistic estimation model for a sample of 601 firms’ observations that involved in accretive share buyback over the period 2010-2015. The outcomes reveal that stock options exercised by insiders (executives and employees) are associated with high likely to engage in accretive share buyback activities.The results also provide evidence that a large percentage of the independent directors serving the board constrain real earnings management by engaging in accretive share buybacks. Our study contributes to the debate on stock options, and their impact on accretive buyback programs to manage reported EPS. Our findings provide insight to investors and the policymakers that managers holding stock options have more incentive to manage EPS through accretive share buyback activities.Academic researchers could extend this study by separating among executive and employees’ stock options and between exercisable and non-exercisable stock options

Women in Board of Directors and Real Earnings Management: Accretive Share Buyback in Malaysia

Gender diversity of boards and reporting of earnings are two most debated issues in the corporate world.In this context, the paper explores how the presence of women directors on the corporate board influence real earnings management through accretive buyback programs. Using a sample of 601 firms’ observations that engage in accretive share buyback from 2010-2015, the findings reveal that existence of women directors on the board is associated with less engagement in accretive share buyback activities. We further find that firms with a higher number of independent directors are less likely to practice real earnings management through accretive buyback programs.Our paper contributes to the debate on gender diversity on boards and its influence on the utilisation of accretive buyback programs as a tool to real earnings management

An overview of share buybacks: A descriptive case from Malaysia

International audienceThis paper reviews the trends and motivations of share buyback programs and highlights the different hypotheses that motivate companies to repurchase their shares. It then explores the share buyback phenomena among Malaysian listed firms during the years from 2010 to 2015. The paper also investigates whether the Malaysian listed firms use share buyback programs to manage their earnings. Based on our manually collected data, we find that 836 firms engage in share buybacks during the period from 2010 to 2015. We employ the criteria of Hribar et al. (2006) to check whether share buyback strategies were used to manipulate earnings per share (i.e. accretive share buyback). We find that more than 75% of firms engage in accretive share buybacks at least one time during the period. Specifically, those firms undertake 637 accretive share buybacks with a value of RM 7.650 billion. This paper contributes to a better understanding of share buyback strategies in general and accretive share buybacks in the Malaysian context. Finally, our findings provide a reference point for relevant parties to improve the applicable regulations of share buyback schemes

Institutional Ownership Types and ESG Reporting: The Case of Saudi Listed Firms

The main aim of this study is to investigate the influence of institutional investors’ ownership (INOW) on firms’ environmental, social, and governance (ESG) reporting in Saudi Arabia. Using data on ESG reporting from the Bloomberg database for 206 Saudi-listed firms spanning the period from 2010 to 2019 and employing ordinary least squares regression (OLS), the results show a significant and positive association between INOW and ESG reporting. When institutional investors are classified into government and privately managed institutions, the research findings clearly show that only government-managed institutional investors (Govt_IO) are linked to ESG reporting in a positive and significant way, whereas there is no significant association between privately managed institutions (Prvt_IO) and ESG reporting. In addition, when the ESG score is disaggregated by individual pillars, we find Govt_IO is positively associated with environmental score and social score. These results suggest that the association between INOW and ESG varies depending on the types of INOW, as well as the ESG components. Even after several additional analyses, including tests for endogeneity, the main results of this study still hold

CEO Characteristics, Family Ownership and Corporate Social Responsibility Reporting: The Case of Saudi Arabia

Only a few studies have investigated the association between the characteristics of the chief executive officer (CEO) (i.e., tenure and local or expatriate) and corporate social responsibility (CSR) reporting. Our study adds to the fledgling literature by providing new evidence from Saudi Arabia. Given the dominance of family control among Saudi Arabian listed firms, additionally, this study examined the moderating effect of family ownership on the CEO-CSR relationship. Using CSR scores from Bloomberg database from 2010 to 2019 and ordinary least squares (OLS) regression, the findings reveal that the association between CEO tenure and CSR reporting is positively significant; however, the association between CEO nationality and CSR is not significant. In addition, the findings indicate that family ownership is an important contingency factor that explains the association between CEO tenure and CEO nationality, and CSR reporting. Our study contributes to an emerging line of CSR research that investigates the effects of foreign CEOs on CSR transparency, and supports prior evidence on the benefits to investors of having long-serving CEO and the costs of family entrenchment

Corporate Governance Mechanisms and ESG Reporting: Evidence from the Saudi Stock Market

The code of corporate governance in Saudi Arabia places a greater focus on social responsibility initiatives by Saudi companies and the reporting of such activities to the community. The current study examines the relationship between corporate governance mechanisms and environmental, social, and governance (ESG) disclosures amongst Saudi companies. In particular, we extend previous studies by covering unique Saudi corporate governance mechanisms (i.e., the presence of members of the royal family on the board (BROY) and of external members on the audit committee (ACEXT)), and their impact on ESG disclosure. Using 206 company-year observations for Saudi listed companies spanning the period 2010 to 2019, we find the presence of BROY and ACEXT has a positive and significant association with ESG disclosure. The findings of this study may help policymakers to develop regulations regarding corporate governance mechanisms to enhance ESG disclosure