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