The Effectiveness of Risk Management Committee Attributes and Real Earnings Management: Empirical Evidence from Malaysia

Abstract

The increasing pattern of business failures especially among large firms in recent years partly contributes to rising awareness of the importance of Risk Management Committee (RMC) in corporate boardrooms. Research in accounting and corporate reporting continue to examine the role of RMC in addressing Real Earnings Management (REM). However, empirical studies on the role of RMC’s attributes in the reporting quality and performance of publicly owned companies are still underdeveloped. This study employs Feasible Generalized Least Square (FGLS) regression to investigate the effects of RMC on REM practice in Malaysian public listed companies. Using a sample of 438 firm-year observations from 2016 to 2018, the research findings reveal that RMC size, diligence, and members’ qualifications have negative effects on REM. Furthermore, the results show that RMC independence has no effect on REM. This study contributes to the body of knowledge on RMC which are essential for improving the financial reporting quality and earnings management.