Underinvestment and value relevance of earnings management

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 f...

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Main Authors:	Mohamat Sabri Hassan, Norman Mohd Saleh, Aulia Fuad Rahman, Zaleha Abdul Shukor
Format:	Article
Language:	English
Published:	Penerbit Universiti Kebangsaan Malaysia 2016
Online Access:	http://journalarticle.ukm.my/10801/ http://journalarticle.ukm.my/10801/ http://journalarticle.ukm.my/10801/1/9290-43009-1-PB.pdf

id	ukm-10801
recordtype	eprints
spelling	ukm-108012017-10-10T13:16:59Z http://journalarticle.ukm.my/10801/ Underinvestment and value relevance of earnings management Mohamat Sabri Hassan, Norman Mohd Saleh, Aulia Fuad Rahman, Zaleha Abdul Shukor, 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. Penerbit Universiti Kebangsaan Malaysia 2016 Article PeerReviewed application/pdf en http://journalarticle.ukm.my/10801/1/9290-43009-1-PB.pdf Mohamat Sabri Hassan, and Norman Mohd Saleh, and Aulia Fuad Rahman, and Zaleha Abdul Shukor, (2016) Underinvestment and value relevance of earnings management. Jurnal Pengurusan, 46 . pp. 99-113. ISSN 0127-2713 http://ejournal.ukm.my/pengurusan/issue/view/805
repository_type	Digital Repository
institution_category	Local University
institution	Universiti Kebangasaan Malaysia
building	UKM Institutional Repository
collection	Online Access
language	English
description	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.
format	Article
author	Mohamat Sabri Hassan, Norman Mohd Saleh, Aulia Fuad Rahman, Zaleha Abdul Shukor,
spellingShingle	Mohamat Sabri Hassan, Norman Mohd Saleh, Aulia Fuad Rahman, Zaleha Abdul Shukor, Underinvestment and value relevance of earnings management
author_facet	Mohamat Sabri Hassan, Norman Mohd Saleh, Aulia Fuad Rahman, Zaleha Abdul Shukor,
author_sort	Mohamat Sabri Hassan,
title	Underinvestment and value relevance of earnings management
title_short	Underinvestment and value relevance of earnings management
title_full	Underinvestment and value relevance of earnings management
title_fullStr	Underinvestment and value relevance of earnings management
title_full_unstemmed	Underinvestment and value relevance of earnings management
title_sort	underinvestment and value relevance of earnings management
publisher	Penerbit Universiti Kebangsaan Malaysia
publishDate	2016
url	http://journalarticle.ukm.my/10801/ http://journalarticle.ukm.my/10801/ http://journalarticle.ukm.my/10801/1/9290-43009-1-PB.pdf
first_indexed	2023-09-18T19:58:28Z
last_indexed	2023-09-18T19:58:28Z
_version_	1777406688375078912

Underinvestment and value relevance of earnings management

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