The purpose of this paper is to examine the effect of related party transactions (RPTs) and types of RPTs (complex, simple and loan) on earnings quality in four East Asian…
The purpose of this paper is to examine the effect of related party transactions (RPTs) and types of RPTs (complex, simple and loan) on earnings quality in four East Asian countries: Hong Kong, Malaysia, Singapore and Thailand.
RPTs and types of RPTs are measured using two approaches, magnitude and abnormal (magnitude change). Earnings quality is measured using proxies for accrual earnings management and identified as discretionary accruals (DAC) and performance matched discretional accruals (PMDAC).
The results suggest that firms in these countries experience poor earnings quality when they are engaged in RPT. The effect of RPT-simple on earnings quality is more severe than RPT-complex. However, the presence of higher investor protection and stricter enforcement of regulations in countries like Singapore and Hong Kong reduce the negative impact of RPTs on earnings quality.
The results support the argument that the presence of controlling shareholders in East Asia is likely to lead to engagement with RPTs, which will increase the likelihood of firms’ earnings manipulation via DAC. This study has two limitations. It only focuses on Hong Kong, Malaysia, Singapore and Thailand, and the results may not be generalizable to other countries. Second, this study only measures the magnitude and abnormal RPTs based on the disclosures available in annual reports.
This paper contributes to the literature by examining the effect of RPTs and types of RPTs on earnings quality in four selected East Asian countries.
The purpose of this study is to examine the relationship between a firm's internal corporate governance characteristics and audit fees, and whether the external auditor…
The purpose of this study is to examine the relationship between a firm's internal corporate governance characteristics and audit fees, and whether the external auditor perceives higher inherent risk when CEO duality is present. Additionally, it aims to examine whether having more independent directors on audit committee moderates the auditor's perceived inherent risk when CEO duality is present.
The data used in testing the hypotheses consist of all the Malaysian public listed companies on the main board in terms of market capitalization non‐finance listed companies for year 2001. Multiple regression analysis is used to estimate the relationships proposed in the hypotheses.
The results show that the presence of CEO duality on the board, a proxy for board independence, is associated with higher audit fees and that this positive relationship is significantly weakened when the firm has a higher proportion of independent directors on the audit committee. These results suggest that auditors in their assessment of the inherent risk of a firm recognize that independent audit committees provide an important check to moderate CEO dominance in firms where CEO duality is present.
In this study, the effect of CEO duality and the independence of the board and audit committee are considered. The paper provides an important insight that having more independent directors on the audit committee moderates the auditor's perceived inherent risk when CEO duality is present following the new code of corporate governance introduced in Malaysia in the aftermath of the Asian financial crisis.