Norashikin Ismail

Regulatory Profit Targets and Earnings Management in Initial Public Offerings: The Case of Malaysia

We examine the extent of earnings management associated with meeting forecasts made in IPO prospectuses in a developing economy where government regulation requires a profit forecast but allows promoters to choose either (1) to provide a profit guarantee or (2) to elect for a moratorium on share transfers for a defined period. Since the manager is mandated to make earnings forecast and there are costs associated with forecast error, we hypothesise that, in the first reporting period following the IPO, managers opting for a profit guarantee will signal their ability to produce a result within the target zone while managers opting for a share moratorium will match that performance to maintain their reputation, with the result that both groups are indistinguishable in the magnitude of earnings management. Using a sample of 92 regulated IPO firms we find a strong negative association between forecase error before earnings management and a firm’s discretionary accruals. Our results support the hypotheses, leading to the conclusion that earnings are managed towards the forecast amount, consistent with both the desire not to deviate excessively from the forecast and income smoothing.

The association of ownership structure and the management earnings forecast: The case of Malaysian initial public offerings (IPOs)

This study investigate the association of different types of ownership structure and the performance of the firm in meeting the earnings forecasts in the context of mandatory earnings forecasts disclosure requirement. The analysis was tested on a sample of 94 IPO prospectuses published from January 2004 to 30th April 2008. With the mean forecast errors of -7.29%, the result indicates that on average, Malaysian IPO companies managed to meet ±10 percent forecast error tolerance level. 59 sample companies (62.7%) are meeting the Bursa Malaysia regulatory limit of ±10 percent tolerance level. OLS regression results exhibits that only management ownership is significantly associated with forecast errors.

Corporate governance quality and ownership concentration type: Evidence from Malaysia

Using Malaysian data, this paper investigates the association between corporate governance quality and ownership concentration type. The results indicate that corporate governance quality is lower for companies with substantial ownership by the Chief Executive Officers family and higher for companies with substantial ownership by Government-related institutional investors.