Earnings quality of Malaysian IPO firms: the effect of share moratorium provision and institutional ownership

The paper focuses on earnings quality (EQ) of Malaysian Initial Public Offering (IPO) firms and examines the effect of share moratorium regulation and institutional ownership on IPO firms’ EQ behavior. Analyzing both real and accrual earnings management (EM) to measure EQ of 220 sample IPO firms over the period from 2002 to 2009, the results indicate that Malaysian IPO firms engage in both real and accrual discretionary EM. Both EQ measures are also observed to be similar between firms with and without share moratorium provision, evidencing the support towards Malaysia's public policy guideline of subjecting all IPO firms to share moratorium regulations as a commitment device to reduce information asymmetry and adverse selection problem between the strategic owners and new investors. The multivariate results further indicate the effective monitoring of institutional shareholders over investee firms’ EQ. The overall results collectively suggest the need for investors to examine investee firms’ real activity discretionary behavior in their investment decisions while regulators should device means of constraining it

Does leverage constrain real and AEM around IPO corporate event? evidence from the emerging market

The article investigates whether Malaysian initial public offering (IPO) firms engage in real and accrual earnings management (AEM) and examines the impact of leverage on the earnings management’s discretionary behaviour of the firms for the period of 2003–2013. The Dechow, Sloan, and Sweeney (1995, The Accounting Review, 70[2], 193–225) cross-sectional modified Jones model was used to estimate discretionary accruals, while Roychowdhury’s (2006, Journal of Accounting and Economics, 42[3]), 335–370) cross-sectional models were used to investigate abnormal real activity discretionary behaviour. The results indicate Malaysian IPO firms engage in real and accrual discretionary behaviour. The graphical presentations of the earnings’ management proxies indicate higher real and AEM for high-leverage firms. Similarly, the multivariate analysis indicates a positive relationship between leverage and earnings management, which is in tandem with the agency cost of free cash flow theory and debt hypothesis. It is also consistent with the pecking-order theory of capital structure. This study suggests that regulatory agencies and standard setters should continue to improve quality of accounting reports in order to protect investors’ invested capital

Real and Accrual Earnings Management, Does Ownership Retention Matters? Evidence from Emerging Market IPOs

The paper investigated the real and accrual earnings discretionary behaviour of Malaysian IPO firms contemporaneously in terms of nature, direction and quantum. It investigates the discretionary behaviour according to year of listing, industrial sectors, individual accounting items and the impact of ownership retention. The sample consists of 253 Malaysian IPO firms from 2002-2013. The 1991,modified Jones and Roychowdhury, (2006) cross sectional models were used to investigate accrual and real activity discretionary behaviour. The results indicate significant positive abnormal real earnings management and a significant difference in earning management proxies across industrial sectors. Retained ownership is negatively associated with earnings management proxies which seem to support the alignment hypothesis. The study justifies the merging of Main and Second boards and recommend tightening of regulations to constrain real activity discretionary behaviour. It provides academics, analysts, regulators and other gatekeepers with better understanding of earnings management around the IPO event. Keywords: Real and Accrual Earnings Management, Initial Public Offering, ownership Retentio

The impact of institutional investors on real and accrual earnings management around IPO: evidence from Malaysian emerging market

The study examines whether Malaysian IPO firms engage in real and accrual earnings management and determines the impact of institutional ownerships on the earnings management discretionary behaviour. The modified Jones (1991) and Roychowdhury (2006) models were used to investigate accrual and real activity behaviours. Institutional ownerships were classified into Conservative and Neutral Pressure Groups. The results indicate Malaysian IPO firms engage in both real and accrual earnings around IPO corporate event. The multivariate analysis shows institutional shareholders constrain real and accrual earnings management which supports the various regulatory r eforms by Securities Commission and Bursa Malaysia. The study suggests the need to encourage the Neutral Pressure Group of institutional investors to engage more in shareholders activism in order to safeguard the value of their investments and for investors to examine real activity behaviours in making their investment strategy while standard setters and regulatory agencies need to enforce additional measures to constrain real activity discretionary behaviour

Earnings management practices and the impact of institutional ownership, share moratorium and retained ownership on earnings management discretionary behaviour of the Malaysian IPO companies

Initial public offering (IPO) is an extraordinary corporate event in Malaysia because apart from being a vital source of finance, it has also been extensively used in implementing government fiscal policy measures for redistribution of income, wealth creation and corporate ownership restructuring which are the cornerstones of the peaceful coexistence of its multicultural society. In the spirit of IPO‟s significance in Malaysia, this thesis examines four separate issues. First, it investigates real and accrual earnings management discretionary behaviour of Malaysian IPO firms listed on Bursa Malaysia in the period 2002-2013 in terms of nature, direction and quantum. Second, third and fourth issues relate to the impact of institutional ownership, moratorium regulation and retained ownership on IPO firm‟s earnings management (both real and accrual discretionary behavior) respectively. Applying models developed by Dechow et al. (1995) and Roychowdhury (2006) to measure IPO firm‟s accruals and real earnings management respectively, the results indicate that first, Malaysian IPO firms engage in both real and accrual discretionary behaviour around the IPO corporate event. Second, it confirms institutional shareholders‟ ability to constrain IPO firms‟ earnings management in line with international evidence. Third, the results indicate that share moratorium firms exhibit higher earnings management than non-share moratorium firms albeit statistically insignificant. This supports the Securities Commission Malaysia and Bursa Malaysia‟s policy guideline of subjecting all IPO firms to share moratorium regulations as a commitment device to reduce information asymmetry. Finally, the research document evidence of a significant negative association between retained ownership and real earnings management which is understandable given its impact on firm value. Additionally, the results provide evidence of trade-off between accrual and real earnings discretionary behaviour among Malaysian IPO firms as a result of tightening of regulations and various regulatory reforms. It reflects the importance of individual line accounting items instead of relying solely on earnings for investors‟ valuation of the IPO firms apart from considering real earnings management activities in their investment strategy. Overall, the study adds to IPO earnings management literature by providing better understanding of Malaysian IPO firms‟ reporting behavior and reinforces the need to constrain real earnings management by regulators

Earnings management practices and the impact of institutional ownership, share moratorium and retained ownership on earnings management discretionary behaviour of the Malaysian IPO companies

Initial public offering (IPO) is an extraordinary corporate event in Malaysia because apart from being a vital source of finance, it has also been extensively used in implementing government fiscal policy measures for redistribution of income, wealth creation and corporate ownership restructuring which are the cornerstones of the peaceful coexistence of its multicultural society. In the spirit of IPO‟s significance in Malaysia, this thesis examines four separate issues. First, it investigates real and accrual earnings management discretionary behaviour of Malaysian IPO firms listed on Bursa Malaysia in the period 2002-2013 in terms of nature, direction and quantum. Second, third and fourth issues relate to the impact of institutional ownership, moratorium regulation and retained ownership on IPO firm‟s earnings management (both real and accrual discretionary behavior) respectively. Applying models developed by Dechow et al. (1995) and Roychowdhury (2006) to measure IPO firm‟s accruals and real earnings management respectively, the results indicate that first, Malaysian IPO firms engage in both real and accrual discretionary behaviour around the IPO corporate event. Second, it confirms institutional shareholders‟ ability to constrain IPO firms‟ earnings management in line with international evidence. Third, the results indicate that share moratorium firms exhibit higher earnings management than non-share moratorium firms albeit statistically insignificant. This supports the Securities Commission Malaysia and Bursa Malaysia‟s policy guideline of subjecting all IPO firms to share moratorium regulations as a commitment device to reduce information asymmetry. Finally, the research document evidence of a significant negative association between retained ownership and real earnings management which is understandable given its impact on firm value. Additionally, the results provide evidence of trade-off between accrual and real earnings discretionary behaviour among Malaysian IPO firms as a result of tightening of regulations and various regulatory reforms. It reflects the importance of individual line accounting items instead of relying solely on earnings for investors‟ valuation of the IPO firms apart from considering real earnings management activities in their investment strategy. Overall, the study adds to IPO earnings management literature by providing better understanding of Malaysian IPO firms‟ reporting behavior and reinforces the need to constrain real earnings management by regulators

The impact of IPO attributes, firm-level characteristics and ownership on Malaysian IPO firms’ earnings management

The paper investigates Malaysian Initial Public Offering (IPO) firms’ financial reporting behaviour from the specific perspective of their earnings management (EM) practices covering both real (REM) and accrual (AEM) techniques. It further examines the impact of unique IPO attributes, firm level characteristics and ownership structure on both EM practices contemporaneously. Using the established and commonly used EM models to measure both AEM and REM for IPO firms from 2002 to 2013, the results indicate that IPO firms engage in both EM strategies around the corporate event. It also shows that such strategies are not just opportunistically motivated but attributable to several unique IPO attributes, firm level characteristics and ownership variables. The paper adds to the existing body of knowledge on IPO in the specific emerging country context of Malaysia which evidence from prior studies are observably scant