Journal of Legal, Ethical and Regulatory Issues (Print ISSN: 1544-0036; Online ISSN: 1544-0044)


The Effect of Board Monitoring on Operating Cash Flows Manipulation among Malaysian Firms

Author(s): Nurul Azlin Azmi, Nor Balkish Zakaria, Zuraidah Mohd Sanusi, Effiezal Aswadi Abdul Wahab

Agency Theory explains the relationship between board of director’s monitoring upon any mismanagement activities. Board credibility, independence, and competency are part of essential internal control mechanisms to monitor the management against financial figures manipulation. These directors have the clout to mitigate earnings management activities due to their authority and position in the firms. This study examines the effectiveness of board in mitigating operating cash flow manipulation among public listed firms in Malaysia. Board’s effectiveness attributes are measured by board directors index (BDI) that comprise of their size, independence, expertise, meeting attendance, gender, and foreign status. The sample of this study is based on 2,460 firm-year during 2013 – 2017. Based on static panel analysis with firm and year fixed effects, the study retrieved boards data from the annual report, whilst the remaining variables were collected from the Datastream. The study finds that BDI has a negative and significant relationship on operating cash flow manipulation. Additional test reveals that board independent is able to curb operating cash flow manipulation. Meanwhile, board size and expertise have a positive and significant effect each on operating cash flow manipulation. This study contributes to the body of literature by focusing on the other measurements of board monitoring and revised Malaysian Code of Corporate Governance (MCCG 2017). This findings could suggest a refinement on the MCCG by focusing on the right balance of board composition in ensuring better governance.

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