Corporate governance and earnings forecasts accuracy

Corporate governance and earnings forecasts accuracy

Purpose - This paper aims to extend the research on the Malaysian initial public offering (IPO) management earnings forecasts by examining the impact of corporate governance mechanisms and earnings forecasts accuracy. It seeks to investigate whether effective corporate governance is a credible signa...

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Bibliographic Details
Published in:Asian review of accounting Vol. 18; no. 1; pp. 50 - 67
Main Authors: AhmadZaluki, Nurwati A., Nordin WanHussin, Wan
Format: Journal Article
Language:English
Published: Bingley Emerald Group Publishing Limited 01-01-2010
Subjects:
Accuracy
Audits
Boards of directors
Committees
Corporate governance
Credibility
Earnings
Earnings forecasting
Earnings management
Executive compensation
Financial disclosure
Financial reporting
Forecasting
Fraud
Initial public offerings
Malaysia
Managers
Quality
Regression analysis
Regulatory reform
Stockholders
Studies
United States > US
Malaysia
Malaysia
Corporate governance
Earnings
Managers
Forecasting
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Summary:Purpose - This paper aims to extend the research on the Malaysian initial public offering (IPO) management earnings forecasts by examining the impact of corporate governance mechanisms and earnings forecasts accuracy. It seeks to investigate whether effective corporate governance is a credible signal of improving the quality of financial information.Design methodology approach - A sample of 235 IPO companies that went public during the period 1999-2006 was used. Absolute forecast error was used to proxy for earnings forecast accuracy and to represent financial disclosure quality.Findings - Companies with a higher percentage of non-executive directors in the audit committees and larger audit committee size exhibit greater forecast accuracy. The accuracy of IPO earnings forecast is also positively influenced by the use of brand-name auditor.Practical implications - The results suggest that effective corporate governance is a credible signal of improving the quality of financial information. The role of audit committee as financial monitors as suggested by the agency theory supports this paper.Originality value - The results are consistent with the belief that effective corporate governance is associated with higher financial disclosure quality. The results also support the decisions made by Malaysian regulators such as the Securities Commission to enhance the quality of financial disclosure by revising the Malaysian Code on Corporate Governance to encourage public companies to implement good governance practices such as audit committee independence.
Bibliography:filenameID:3410180104
original-pdf:3410180104.pdf
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ISSN:1321-7348
1758-8863
DOI:10.1108/13217341011046006