Audit committee chairman characteristics and earnings management: The influence of family chairman

PurposeThe purpose of this paper is to examine the influence of the characteristics of audit committee chairman (ACC) (tenure, age, gender, ethnicity, accounting expertise and directorship) on earnings management (EM) practices.Design/methodology/approachThe Jones model and modified Jones model by D...

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Bibliographic Details
Published in:Asia-Pacific journal of business administration 2019-10, Vol.11 (4), p.339-370
Main Authors: Al-Absy, Mujeeb Saif Mohsen, Ku Ismail, Ku Nor Izah, Chandren, Sitraselvi
Format: Article
Language:English
Subjects:
Accounting
Annual reports
Audit committees
Audits
Boards of directors
Chairman of the board
Chief executive officers
Committees
Corporate governance
Directors
Earnings management
Ethnicity
Financial reporting
Gender
Influence
Scandals
Stockholders
Tenure
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Summary:PurposeThe purpose of this paper is to examine the influence of the characteristics of audit committee chairman (ACC) (tenure, age, gender, ethnicity, accounting expertise and directorship) on earnings management (EM) practices.Design/methodology/approachThe Jones model and modified Jones model by Dechow et al. (1995) were used to determine the discretionary accruals (DA) of 288 Malaysian listed firms with lowest positive earnings for the years 2013‒2015.FindingsThe results of the ordinary least squares regression indicate that only tenure, gender and ethnicity of the ACC are associated with DA. A further test was conducted by dividing firms into two groups: firms whose boards are chaired by a family member and firms whose boards are chaired by a non-family member. The results reveal that it is possible for firms whose boards are chaired by family members to cause the corporate governance (CG) mechanisms, particularly the audit committee, to lose their effectiveness in overcoming the EM problem. In addition, robustness tests were conducted by using panel data regression, where the results were found to be similar to the original regression results.Originality/valueThis study alerts policymakers, firms and their stakeholders, as well as researchers, regarding the importance of having an independent board chairman, who has no relationship with any directors or major shareholders, as this may hinder the effectiveness of CG mechanisms in curbing EM, especially in emerging countries, such as Malaysia, where it is very difficult to stop members of the family from becoming board directors.
ISSN:1757-4323
1757-4331
DOI:10.1108/APJBA-10-2018-0188