The Association between Board Characteristics and Earnings Quality : Malaysian Evidence

This study examines the relationship between board characteristics and earnings quality after the Malaysian Code on Corporate Governance was amended in 2007. It uses heteroskedasticity-corrected least square regressions upon a sample of Malaysian firms listed in 2008 and 2009. We find that the quality of earnings is higher for firms with independent chairmen than those with non-independent chairmen. However, in contradiction to our expectation are inconclusive results on board independence. The results also demonstrate that investors do not perceive board size as a good indicator of quality earnings. These findings imply that investors still have reservations about the ability of boards to enhance the quality of earnings, although there have been efforts to reform corporate governance following the Asian financial crisis. This study serves as a signal to policy makers to evaluate the importance of board mechanisms in enhancing financial reporting quality in emerging markets