Financial reporting quality following the corporate governance reforms: A conditional conservatism perspective

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Abstract

This study examines the quality of financial reporting during the period following the corporate governance reforms in Malaysia, as motivated by the importance of investors’ needs for high-quality financial reporting. Using the asymmetric timeliness of the earnings model, we analysed the sample of 6,819 firm-year observations of Malaysian listed companies from 2002 to 2011. The findings show evidence of the high quality of reporting following the corporate governance reforms. We found that firms have reported a more timely recognition of losses than gains in the post-reform period. Our results suggest that conditional conservatism has been prevalent during the period, and the results are robust even after conducting extensive specification tests. This study suggests that after the corporate governance reforms, Malaysian companies’ financial statements have been more reliable for investors in making investment decisions.

Keywords: Financial Reporting Quality, Corporate Governance, Conditional Conservatism, Institutional Reforms

Authors’ individual contribution: Conceptualization — W.A.W.I. and K.A.K.; Resources — W.A.W.I.; Methodology — W.A.W.I. and K.A.K.; Writing — Original Draft — W.A.W.I., I.H., and D.A.; Writing — Review & Editing — W.A.W.I., I.H., and D.A.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: The authors thank the workshop participants at the Universiti Teknologi Mara, Malaysia (UiTM) and Universitas Airlangga, Indonesia (UNAIR) for insightful and constructive comments. The research is financially supported by the UITM-UNAIR Matching Grant No. 100-TNCPI/INT 16/6/2 (027/2020).

JEL Classification: G38, G18, M41, M43, M44

Received: 30.01.2021
Accepted: 10.05.2021
Published online: 13.05.2021

How to cite this paper: Ismail, W. A. W., Harymawan, I., Agustia, D., & Kamarudin, K. A. (2021). Financial reporting quality following the corporate governance reforms: A conditional conservatism perspective [Special issue]. Journal of Governance & Regulation, 10(2), 216–225. https://doi.org/10.22495/jgrv10i2siart3