Determinants of fraudulent financial reporting: evidence from Malaysia

This study examines two issues relating to fraudulent financial reporting in Malaysia. The first issue examines factors involved with fraudulent financial reporting practices; i.e. predisposition (i.e. related party transactions, history of prior violations, founders on board), motive (i.e. econom...

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Main Authors:	Suhaily Hasnan, Rashidah Abdul Rahman, Sakthi Mahenthiran
Format:	Article
Language:	English
Published:	Penerbit Universiti Kebangsaan Malaysia 2014
Online Access:	http://journalarticle.ukm.my/9414/ http://journalarticle.ukm.my/9414/ http://journalarticle.ukm.my/9414/1/9214-25190-1-PB.pdf

id	ukm-9414
recordtype	eprints
spelling	ukm-94142016-12-14T06:49:51Z http://journalarticle.ukm.my/9414/ Determinants of fraudulent financial reporting: evidence from Malaysia Suhaily Hasnan, Rashidah Abdul Rahman, Sakthi Mahenthiran, This study examines two issues relating to fraudulent financial reporting in Malaysia. The first issue examines factors involved with fraudulent financial reporting practices; i.e. predisposition (i.e. related party transactions, history of prior violations, founders on board), motive (i.e. economic factor, ownership factor, political factor) and opportunity (i.e. poor corporate governance). Then, the second issue looks into the relationship between earnings management and the occurrences of fraudulent financial reporting. The study uses a matched sample of 53 firms that were convicted of issuing fraudulent financial statements during the period from 1996 to 2007. Our results show that firms with fewer related party transactions, higher number of prior violations, and higher proportion of founders on board are more likely to “tip” over the edge into fraudulent financial reporting. We also find that the corporate environment most likely to lead to fraudulent financial reporting is characterised by accounting practices that are already “pushing the envelope” on earnings management. Furthermore, we find that firms are embroiled in fraudulent financial reporting when non-family and non-foreigners own the company, and when the level of financial distress is high. As expected, our results also show that firms involved in fraudulent financial reporting have significantly poor corporate governance structures whereby the audit quality is lower and outside directors seem overcommitted. However, we find no evidence that firm’s political connection factor or the level of board independence play a significant role in the potential for fraudulent financial reporting. Penerbit Universiti Kebangsaan Malaysia 2014 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/9414/1/9214-25190-1-PB.pdf Suhaily Hasnan, and Rashidah Abdul Rahman, and Sakthi Mahenthiran, (2014) Determinants of fraudulent financial reporting: evidence from Malaysia. Jurnal Pengurusan, 42 . pp. 103-117. ISSN 0127-2713 http://ejournal.ukm.my/pengurusan/issue/view/614
repository_type	Digital Repository
institution_category	Local University
institution	Universiti Kebangasaan Malaysia
building	UKM Institutional Repository
collection	Online Access
language	English
description	This study examines two issues relating to fraudulent financial reporting in Malaysia. The first issue examines factors involved with fraudulent financial reporting practices; i.e. predisposition (i.e. related party transactions, history of prior violations, founders on board), motive (i.e. economic factor, ownership factor, political factor) and opportunity (i.e. poor corporate governance). Then, the second issue looks into the relationship between earnings management and the occurrences of fraudulent financial reporting. The study uses a matched sample of 53 firms that were convicted of issuing fraudulent financial statements during the period from 1996 to 2007. Our results show that firms with fewer related party transactions, higher number of prior violations, and higher proportion of founders on board are more likely to “tip” over the edge into fraudulent financial reporting. We also find that the corporate environment most likely to lead to fraudulent financial reporting is characterised by accounting practices that are already “pushing the envelope” on earnings management. Furthermore, we find that firms are embroiled in fraudulent financial reporting when non-family and non-foreigners own the company, and when the level of financial distress is high. As expected, our results also show that firms involved in fraudulent financial reporting have significantly poor corporate governance structures whereby the audit quality is lower and outside directors seem overcommitted. However, we find no evidence that firm’s political connection factor or the level of board independence play a significant role in the potential for fraudulent financial reporting.
format	Article
author	Suhaily Hasnan, Rashidah Abdul Rahman, Sakthi Mahenthiran,
spellingShingle	Suhaily Hasnan, Rashidah Abdul Rahman, Sakthi Mahenthiran, Determinants of fraudulent financial reporting: evidence from Malaysia
author_facet	Suhaily Hasnan, Rashidah Abdul Rahman, Sakthi Mahenthiran,
author_sort	Suhaily Hasnan,
title	Determinants of fraudulent financial reporting: evidence from Malaysia
title_short	Determinants of fraudulent financial reporting: evidence from Malaysia
title_full	Determinants of fraudulent financial reporting: evidence from Malaysia
title_fullStr	Determinants of fraudulent financial reporting: evidence from Malaysia
title_full_unstemmed	Determinants of fraudulent financial reporting: evidence from Malaysia
title_sort	determinants of fraudulent financial reporting: evidence from malaysia
publisher	Penerbit Universiti Kebangsaan Malaysia
publishDate	2014
url	http://journalarticle.ukm.my/9414/ http://journalarticle.ukm.my/9414/ http://journalarticle.ukm.my/9414/1/9214-25190-1-PB.pdf
first_indexed	2023-09-18T19:54:49Z
last_indexed	2023-09-18T19:54:49Z
_version_	1777406458814529536

Determinants of fraudulent financial reporting: evidence from Malaysia

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