ESTRUCTURA BÁSICA DE UN MICROCONTROLADOR9

This section summarises the major findings of the study. The findings will be discussed based on the research objectives of this study under the following headings:

 Earnings management in Malaysian Shariah-approved companies

 Corporate governance practices and earnings management

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7.2.1 Earnings management in Malaysian Shariah-approved companies

The main objectives of this study were to measure whether earnings management occurs in Malaysian Shariah-approved companies, and the extent of earnings management in these companies. Discretionary accruals (DACC) was used as a proxy of earnings management, and was measured using three well known models in earnings management literature: the Jones Model, the Modified Jones Model and the Performance Matched Model. Three models were used to ensure the robustness of the results obtained in this study. The descriptive statistics show that the estimated coefficients obtained for the change in revenue is, on average, positive, the estimated coefficients for the property, plant and equipment was, on average, negative and the estimated coefficients for return on assets was positive. All the estimated coefficients obtained in measuring discretionary accruals are as expected and consistent with previous literature, therefore, it appears that the models have produced plausible estimates and are well specified.

The consistent negative means value of DACC obtained for all the three earnings

management measurements models indicates that, on average, these companies manage their earnings via income decreasing accruals. The results of one-sample t-test indicated that the p- value for absolute values of discretionary accruals is significantly different from zero,

providing evidence that, on average, Shariah-approved companies in Malaysia managed their earnings downward. A possible reason is to avoid higher expectations from investors and/or to reduce amount of tax expenses.

7.2.2 Corporate governance practices and earnings management

The third research objective of this study was to examine whether selected corporate governance practices are determinants of earnings management in Malaysian Shariah-

approved companies. The descriptive statistics for the characteristics of board of directors and audit committee provide evidence that, on average, the majority of the companies comply with the MCCG 2000 and the Bursa Listings Requirements in terms of: board size, CEO duality, audit committee size, the proportion of independent members on the audit committee, audit committee expertise, and the frequency of audit committee meetings.

This study also revealed, via correlation analysis, that there are significant relationships between Board Multiple Directorships, Audit Committee Independence, Audit Committee Expertise and earnings management.

140 The results of multiple regressions analysis provided a means of showing the relationship between a single dependent variable and several independent variables. Stepwise regression was performed to determine the variable that explained the most variation in the dependent variable. The basic multiple regression model was re-specified to address the issues of multicollinearity and independency with this model providing better explanatory power and offering the best inferences about all variables. Having confirmed all the underlying

assumptions for regression analysis, the results revealed that all regressions results for the models were significant. Using the absolute value of DACC as a proxy for earnings management, this study reveals a significant negative relationship between earnings management and the holding of multiple directorships. This indicates that governance expertise and knowledge of best practices gained by holding multiple directorships is

transferred to other companies by the directors involved. With this expertise and knowledge, directors play an influential role in monitoring financial reporting activities in their

companies. Therefore, it is concluded that board multi directorship is a significant determinant of earnings management in Malaysian Shariah-approved companies.

The initial findings of this study showed a significant positive association between earnings management and both Audit Committee Independence and Audit Committee Expertise, implying that the establishment of audit committees in the Malaysian Islamic capital market has not been effective in monitoring earnings management. However, further analysis using a dichotomous variable for the proportion of audit committee that were independent directors, further analysis indicated that having independent directors on the audit committee has no significant effect on earnings management. A possible explanation could be that, in general, the directors of Shariah-approved companies act ethically so being independent does not really matter.

Similar further analysis on Audit Committee Expertise was also carried out, with results indicating that having one audit committee member with financial expertise has a significant negative relationship with earnings management. However, having more than one audit committee member with financial expertise has no impact confirming that the requirement of the MCCG 2000 is adequate and effective in monitoring earnings management in Malaysian Shariah-approved companies. Indeed, there is a possibility that having more than one

financial expert could lead the audit committee members to be ineffective in their oversight duties.

141 The results of further analyses revealed that board size has a significant positive relationship with earnings management, in other words, the greater the board size, the less their efficiency in monitoring the financial reporting process. This suggests that, with bigger board sizes, directors have to compromise on their shared understanding of the required level of effective control. Therefore, it is concluded that board size is an important determinant of earnings management in Malaysian Shariah-approved companies.

The initial findings of this study further showed that there was a negative relationship

between the proportion of the Audit Committee Malay and earnings management with Malay names used as a surrogate for the followers of Islam. However, none of the results were significant and further analysis was needed to investigate any influence a majority of Malay members on the Audit Committee might have on earnings management. Using a dichotomous variable, the results provided evidence of majority Malay/Muslim members on the audit committee having a significant negative relationship with earnings management. The result is significant for income decreasing accruals, providing evidence that having a majority of Malay/Muslim members on the audit committee influenced the behaviour and action of the company in accord with the tenets of Islam.

The findings revealed that the majority of Malaysian Shariah-approved companies comply with the MCCG 2000 and the Bursa Malaysia Listings Requirements for corporate

governance characteristics. However, only some characteristics: board multi directorship, board size, audit committee size, financial expertise of board , and financial expertise of the audit committee, were found to have a significant relationship with earnings management. It is therefore, questionable whether the compliance is just to fulfil the requirements rather than achieve the intent of these requirements.

7.2.3 Firm characteristics and earnings management

The fourth set of objectives of this study was to determine whether company specific characteristics such as size, leverage, growth, profitability and industry classification are factors influencing earnings management in Malaysian Shariah-approved companies. Consistent with previous studies, size and growth of companies were found to be negatively related to earnings management. It is suggested that large firms receive higher public scrutiny and are able to attract directors with superior expertise and experience, and therefore their level of earnings management is lower than small firms’. As for growth, a possible explanation could be that high growth companies are more likely to have incentives for earnings management in order to meet earnings forecasts by analysts. For these reasons, it is

142 concluded that size and growth of firms are also important determinants of earnings

management in Malaysian Shariah-approved companies.

Consistent with the results found by previous studies, firm leverage and profitability are positively associated with earnings management, meaning that leveraged firms tend to manage their earnings more than companies with low levels of debt. A possible explanation could be that high debt levels could lead managers to manage earnings in order to facilitate debt contracts. As for profitability, it implies that companies reporting a high return on assets actively manage their reported earnings. Therefore, it is concluded that both leverage and profitability are also earnings management determinants.

Finally, using a dichotomous variable, industry classification, such as Property and Construction, was found to have a significant positive relationship with earnings management. The unique features and nature of business activities for the Property and Construction industries provide greater opportunity for managers to manage earnings through the recognition of revenue and expenses. The most unique feature for these industries is that their activities are carried out over more than one accounting period. Secondly, the revenue recognition during development or construction involves estimation plus the nature of these two industries requires a huge amount of current assets and non-current assets for their operation. Fourthly, and finally, the sale of development units for the property industry can occur at varying points in time. It is therefore concluded that industry classification is another important determinant of earnings management in Malaysian Shariah-approved companies.