Real Earnings Management and Audit Committee Characteristics
Abstract
Whether audit committee (AC) could discharge its responsibility effectively in monitoring financial reporting process has been an important issue in accounting literature. This paper examines whether AC characteristics are important factors in constraining earnings manipulation. In particular, we examine the effect of AC competence, independence, meeting and size on real earnings management. The sample is public firms listed on Bursa Malaysia over the period 2014-2017. Our results show that AC competence is important characteristic that could curb real earnings management. As the level of competence increases, the level of real earnings management decreases. We also find that AC meeting is positively associated with real earnings management. The result suggest that AC meets more often when there are issues in financial reporting. However, AC independence and size have no relationship with real earnings management. This study provides insights on the role of AC with policy implication on regulator.
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