Ownership Structure and Earnings Management in Malaysian Listed Companies: The Size Effect

Abstract

According to the agency theory, separation of ownership and control
gives rise to manager’s incentives to select and apply accounting
estimates and techniques that can increase their own wealth. This
issue has become more important in recent years as more firms are
listed on stock exchanges as public firms. This study examines the
association between the level of managerial ownership and earnings
management activities, represented by the magnitude of
discretionary accounting accruals in Malaysian listed firms. The
results show that managerial ownership is negatively associated with
the magnitude of accounting accruals. However, this study finds that
managerial ownership is less important in large-sized firms compared
to small-sized firms. This finding suggests that large-sized firms
demand and use better corporate governance mechanisms due to
higher agency conflicts, and, therefore, less managerial ownership
is needed for control. As part of the ownership structure, this study
also examines the roles of block and foreign ownerships in relation
to the magnitude of discretionary accounting accruals.
Keywords:Ownership Structure, Managerial Ownership, Firm Size,
Discretionary Accruals.
JEL classification: M410, G32, G34