RELIGION AND EARNINGS MANAGEMENT - Some ... - Unitec

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the Pearson correlation in Table 3, which shows no significant associate between the two. Given the low VIF of both variables in the OLS (Table 8), we can be assured that the non-parametric Chi-Square results are suggestive of an association rather than a strong signal of a strong persistent association. Multivariate Place Table 7 here We first use OLS to estimate Model 1. The results for this procedure are in Table 8. The results show that, as hypothesized, Shariah has a significant negative association with EM (p
the informativeness of earnings also improves. Managerial ownership plays a dual role in this regard. First, higher managerial ownership can reduce agency problems outright thus reducing the need for additional external monitoring. Second, since managers are stockholders, they would like to enhance the value of stocks by improving the accounting and business practices of the firm. This similarity of results for these two key agency variables and the significance of Shariah in reducing earnings management support Noreen’s (1988) view that religion can be one of the ways of limiting agency problems along with other monitoring mechanisms. We believe that this improvement occurs due to increased commitment of management to adopt better business practices when a firm commits itself to being recognized as a Shariah firm by adopting the principals of Shariah. 9.0 CONCLUSION The purpose of this paper is to examine the association between ethical religious values and earnings management. Using the Malaysian Islamic Capital Market context, we take the classification of a firm as a Shariah firm as a sign of a commitment to better business practices and accountability processes, while non- Shariah classification of a firm as a sign of a lower commitment to these business practices and processes. We use a sample of 1406 firm-year observations of Malaysian firms spread across six years. We find support for our hypothesis that the earnings management of firms is negatively associated with the religious business norms and accountability processes of Shariah. The association with Shariah takes place together with other agency variables, managerial ownership and Shareholder Concentration. This result strengthens the notion that ethical qualities arising from a commitment to religious ethics plays a role in the determination of earnings management along with other agency variables. The theoretical contribution of this finding is that while the traditional agency variables are effective in reducing agency problems, additional variables such as religious ethics (as identified by Noreen, 1988) could provide added support to reduce agency problems. However, the efficiency of religion may, depend on the prominence of religious ethical norms in a socio-economic setting. So, other ethical mechanisms can be introduced in a setting where religion may not be a 19
Page 1 and 2: RELIGION AND EARNINGS MANAGEMENT -
Page 3 and 4: 1.0 INTRODUCTION Human quality of s
Page 5 and 6: The paper is structured as follows:
Page 7 and 8: Kuala Lumpur Shariah Index in 1999
Page 9 and 10: i. Resources should be utilized and
Page 11 and 12: The SAC uses quantitative measures
Page 13 and 14: codes for their strategic choices o
Page 15 and 16: industry, we also control for year
Page 17: Bivariate We compute Pearson bivari
Page 21 and 22: 8.0 REFERENCES American Institute o
Page 23 and 24: Naughton, S. and Naughton, T. 2000.
Page 25 and 26: EM Shariah Market Value Table 2 Sam
Page 27 and 28: Table 8 OLS Standardized Coefficien

RELIGION AND EARNINGS MANAGEMENT - Some ... - Unitec

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