Open Access Te Herenga Waka-Victoria University of Wellington
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Assessment of Earnings Conservatism in Malaysian Financial Reporting

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posted on 2021-11-15, 05:04 authored by Khairul Anuar Kamarudin

This study examines four influences on earnings conservatism of financial reporting in Malaysia. The study employs a sample of 3,126 firm-year observations of Malaysian listed companies over the period 2003 to 2008 and measures conservatism by the asymmetric timeliness of earnings measure due to Basu (1997). First, the study assesses the degree of earnings conservatism in reporting during the period following the institutional reforms which started after the 1997 Asian financial crisis. The results suggest that conservatism has increased with the reforms which contrasts with the findings of Ball et al. (2003) who find no evidence of earnings conservatism in Malaysia. Second, this study investigates the effect of the adoption of IFRS on the level of earnings conservatism. The results show no systematic difference in the level of earnings conservatism for the short period of one to two years before and after the adoption, suggesting that conservatism may not be specific to any particular set of accounting standards. Third, this study examines the effect of ownership structure on earnings conservatism. Reporting by family firms and widely-held firms exhibits earnings conservatism, but this is not the case for state-controlled firms. The analysis also shows no significant difference between the levels of earnings conservatism for family firms and widely-held firms. Additional tests show that family firms that are strategically controlled by a family, that is, where a member of the controlling family acts as CEO and chairman of the corporate board, report significantly higher earnings conservatism than other family firms.

Finally, the study examines the link between corporate governance and earnings conservatism. Employing a comprehensive set of corporate governance variables, this study does not find any evidence to link corporate governance and earnings conservatism. This result is contrary to the evidence from developed markets, such as the United States and the United Kingdom, where firms with good governance are more timely in recognising bad news. This raises the possibility that the different ownership structures in Malaysia make corporate governance reforms less important. However, this suggestion is subject to environmental and cultural issues that have not been addressed in this study.


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Date of Award



Te Herenga Waka—Victoria University of Wellington

Rights License

Author Retains Copyright

Degree Discipline


Degree Grantor

Te Herenga Waka—Victoria University of Wellington

Degree Level


Degree Name

Doctor of Philosophy

Victoria University of Wellington Item Type

Awarded Doctoral Thesis



Victoria University of Wellington School

School of Accounting and Commercial Law


van Zijl, Tony; Dunstan, Keitha