Integrated thinking, earnings manipulation and value creation: Malaysian empirical evidence

Abstract

PurposePrior literature proposes that integrated reporting (IR) drives integrated thinking (IT), enabling an organisation to create value for stakeholders in both quantitative (economic performance) and qualitative manners (beyond financially-oriented information). Fraud triangle theory also predicts that earnings manipulation may also affect the creation of value. Thus, this study seeks to provide empirical evidence on the relationship between IT, earnings manipulation and value creation.Design/methodology/approachThis data sample comprises of 497 observations from 2014 to 2018 of the top 100 market capitalisation of Malaysian public listed companies (PLCs) in Bursa Malaysia. This study used an index score for IT variable and Beneish’s M-score as a proxy to detect earnings manipulations and to classify the companies into non-manipulators and manipulator companies. Value creation measurements consist of four variables under shareholder's value creation and one variable represents value creation through innovation.FindingsThe findings show that IT is significantly related to value creation, whereas earnings manipulation had no significant relationship with value creation except for value creation measured using Tobin's Q ratio. The alarming finding is that a fraud predictor, namely earning manipulation, measured by Beneish-M, is not a predictor of whether companies are creating better or less value.Originality/valueThis study is among the early literature that provides empirical evidence of the relationship between IT and value creation. Furthermore, this paper adds to look at the association of earning manipulation and value creation.