CEO characteristics and earnings management : evidence from Malaysia

Abstract

This research examines the impacts of CEO characteristics on earnings management. Several corporate failures around the world have drawn the attention of relevant parties to CEO characteristics, and they have necessitated the need for strong corporate governance to improve financial reporting practices. CEOs are responsible for setting the organisation's activities and plans, managing organisation's overall operations, making important strategic decisions, and determining company resource's effective allocation on behalf of the shareholders. However, corporate managers usually decide on accounting policies and operational decisions that are not conformity with approved accounting standards to stabilise revenues and meet financial results. Thus, the main objective of this study is to examine the impacts of CEO characteristics on earnings management. The current study examines the impacts of four CEO characteristics, namely CEO age, CEO tenure, CEO gender, and CEO financial expertise, on earnings management. Data were collected from 122 companies from the top 200 Malaysian public listed companies' annual reports between 2015 and 2019 in order to build a reliable sample. Upper echelons theory was employed as the theory upon which this study is built; this theory also guides the development of research framework for the present study. Having adopted quantitative research design, the results show that CEO age and CEO financial expertise are positively related to earnings management. However, CEO tenure and gender are negatively related to earnings management. This study suggests an improvement in CEO characteristics among the Malaysian public listed companies. These findings can be helpful for Malaysian regulatory bodies, such as the Securities Commission and Bursa Malaysia, to improve the financial reporting practices. Furthermore, these findings have strong implications for the investors, policymakers, and accounting professionals on the extent to which CEO characteristics are associated with earnings management.