THE EFFECT OF FINANCIAL AND CORPORATE GOVERNANCE FACTORS ON THE FORCED FINANCIAL RESTATEMENT LIKELIHOOD: EVIDENCE FROM MALAYSIA

  • Intan Waheedah Othman Faculty of Accountancy, Universiti Teknologi MARA, Selangor Branch, Puncak Alam Campus, Selangor, Malaysia.
  • Richard Slack Durham University Business School, Durham University, Durham, United Kingdom.
  • Rebecca Stratling Accounting Research Institute, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia
  • Sharifah Norzehan Syed Yusuf Accounting Research Institute, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia.
  • Wan Shahriah Wan Mohd Radzi Tingkat 3, Menara PNB, 201 Jalan Tun Razak, Kuala Lumpur, Malaysia.

Abstract

Background and Purpose: Forced financial restatement (FFR) creates a major concern as it has an instantaneous and disastrous effect on a firm’s share price. Whilst studies focusing on FFR are limited, this study investigated the financial and corporate governance influences that affect the FFR likelihood within the emerging background of Malaysia. This study aims to provide new evidence and insights to Malaysian regulators in developing strategies to reinforce financial reporting quality.

 

Methodology: The influences of board independence, political connection, audit committee financial expertise, government-related institutional ownership, family ownership and control, corporate reporting quality, and financial distress on FFR occurrence were investigated. A multivariate logistic model was employed on 4,759 firm-year observations from 2002 until 2012.

Findings: Findings revealed that aggressive accounting influences the FFR likelihood. Based on the results, the number of independent board directors, the presence of politically connected investors or management, working capital accruals management, real earnings management, and the financial health of the firm amplified the FFR occurrences.

 

Contributions: This study enriches the body of knowledge on FFR by investigating a wider range of financial and corporate governance factors as possible determinants of FFR.

 

Keywords: Forced financial restatement, opportunistic, accruals management, real earnings management, Malaysia.

 

Cite as: Slack, R., Othman, I. W., Stratling, R., Syed-Yusuf, S. N., & Wan Mohd Radzi, W. S. (2023). The effect of financial and corporate governance factors on the forced financial restatement likelihood:  Evidence from Malaysia. Journal of Nusantara Studies, 8(TI), 147-176. http://dx.doi.org/10.24200/jonus.vol8issTIpp147-176

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Published
2023-09-30
How to Cite
Othman, I. W., Slack, R., Stratling, R., Syed Yusuf, S. N., & Wan Mohd Radzi, W. S. (2023). THE EFFECT OF FINANCIAL AND CORPORATE GOVERNANCE FACTORS ON THE FORCED FINANCIAL RESTATEMENT LIKELIHOOD: EVIDENCE FROM MALAYSIA. Journal of Nusantara Studies (JONUS), 8(3), 147-176. https://doi.org/10.24200/jonus.vol8iss3pp147-176