Abstract
The aim of this study is to examine whether earnings management among underinvestment firms is positively related to share price. Firms are said to have high growth opportunity but is unable to fund investment projects due to liquidity constraints because of the information asymmetry between the firm and the investors. As a result, firms have to provide high quality accounting information (i.e. value relevant information) to reduce information asymmetry and hence be free from liquidity constraints. One type of accounting information that can be provided is discretionary accrual (proxy for earnings management). The sample of this study is firms listed on the Main Board of Bursa Malaysia from year 2001 to 2007. We use Ohlson's model to examine the value relevance of earnings management. We separate earnings into managed and unmanaged earnings. Panel data regression analyses were performed to examine the role of underinvestment on the relationship between earnings management and share price. We also examine the value relevance of earnings management using the return model. The results from the panel data regression analysis indicate that earnings management increases the value relevance of accounting information. Further, underinvestment moderates the relationship between earnings management and share price. Nevertheless, the results suggest that earnings management among firms can decrease the value relevance of accounting information. In general, it is concluded that underinvestment weakens the relationship between earnings management and share price/return, hence it motivates managers to convey opportunistic earnings management.
| Original language | English |
|---|---|
| Journal | Jurnal Pengurusan |
| Volume | 46 |
| Publication status | Published - 2016 |
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Keywords
- Information asymmetry
- Informational earnings management
- Underinvestment
- Value relevance
ASJC Scopus subject areas
- Business, Management and Accounting (miscellaneous)
- Accounting
- Business and International Management
Cite this
Underinvestment and value relevance of earnings management. / Hassan, Mohamat Sabri; Mohd Saleh, Norman; Rahman, Aulia Fuad; Abdul Shukor, Zaleha.
In: Jurnal Pengurusan, Vol. 46, 2016.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Underinvestment and value relevance of earnings management
AU - Hassan, Mohamat Sabri
AU - Mohd Saleh, Norman
AU - Rahman, Aulia Fuad
AU - Abdul Shukor, Zaleha
PY - 2016
Y1 - 2016
N2 - The aim of this study is to examine whether earnings management among underinvestment firms is positively related to share price. Firms are said to have high growth opportunity but is unable to fund investment projects due to liquidity constraints because of the information asymmetry between the firm and the investors. As a result, firms have to provide high quality accounting information (i.e. value relevant information) to reduce information asymmetry and hence be free from liquidity constraints. One type of accounting information that can be provided is discretionary accrual (proxy for earnings management). The sample of this study is firms listed on the Main Board of Bursa Malaysia from year 2001 to 2007. We use Ohlson's model to examine the value relevance of earnings management. We separate earnings into managed and unmanaged earnings. Panel data regression analyses were performed to examine the role of underinvestment on the relationship between earnings management and share price. We also examine the value relevance of earnings management using the return model. The results from the panel data regression analysis indicate that earnings management increases the value relevance of accounting information. Further, underinvestment moderates the relationship between earnings management and share price. Nevertheless, the results suggest that earnings management among firms can decrease the value relevance of accounting information. In general, it is concluded that underinvestment weakens the relationship between earnings management and share price/return, hence it motivates managers to convey opportunistic earnings management.
AB - The aim of this study is to examine whether earnings management among underinvestment firms is positively related to share price. Firms are said to have high growth opportunity but is unable to fund investment projects due to liquidity constraints because of the information asymmetry between the firm and the investors. As a result, firms have to provide high quality accounting information (i.e. value relevant information) to reduce information asymmetry and hence be free from liquidity constraints. One type of accounting information that can be provided is discretionary accrual (proxy for earnings management). The sample of this study is firms listed on the Main Board of Bursa Malaysia from year 2001 to 2007. We use Ohlson's model to examine the value relevance of earnings management. We separate earnings into managed and unmanaged earnings. Panel data regression analyses were performed to examine the role of underinvestment on the relationship between earnings management and share price. We also examine the value relevance of earnings management using the return model. The results from the panel data regression analysis indicate that earnings management increases the value relevance of accounting information. Further, underinvestment moderates the relationship between earnings management and share price. Nevertheless, the results suggest that earnings management among firms can decrease the value relevance of accounting information. In general, it is concluded that underinvestment weakens the relationship between earnings management and share price/return, hence it motivates managers to convey opportunistic earnings management.
KW - Information asymmetry
KW - Informational earnings management
KW - Underinvestment
KW - Value relevance
UR - http://www.scopus.com/inward/record.url?scp=84976904116&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84976904116&partnerID=8YFLogxK
M3 - Article
AN - SCOPUS:84976904116
VL - 46
JO - Jurnal Pengurusan
JF - Jurnal Pengurusan
SN - 0127-2713
ER -