THE EFFECT OF FINANCIAL AND CORPORATE GOVERNANCE FACTORS ON THE FORCED FINANCIAL RESTATEMENT LIKELIHOOD: EVIDENCE FROM MALAYSIA

Abstract

Background and Purpose: Forced financial restatement (FFR) creates a major concern as it has an instantaneous and disastrous effect on a firm’s share price. Whilst studies focusing on FFR are limited, this study investigated the financial and corporate governance influences that affect the FFR likelihood within the emerging background of Malaysia. This study aims to provide new evidence and insights to Malaysian regulators in developing strategies to reinforce financial reporting quality.   Methodology: The influences of board independence, political connection, audit committee financial expertise, government-related institutional ownership, family ownership and control, corporate reporting quality, and financial distress on FFR occurrence were investigated. A multivariate logistic model was employed on 4,759 firm-year observations from 2002 until 2012. Findings: Findings revealed that aggressive accounting influences the FFR likelihood. Based on the results, the number of independent board directors, the presence of politically connected investors or management, working capital accruals management, real earnings management, and the financial health of the firm amplified the FFR occurrences.   Contributions: This study enriches the body of knowledge on FFR by investigating a wider range of financial and corporate governance factors as possible determinants of FFR.   Keywords: Forced financial restatement, opportunistic, accruals management, real earnings management, Malaysia.   Cite as: Slack, R., Othman, I. W., Stratling, R., Syed-Yusuf, S. N., & Wan Mohd Radzi, W. S. (2023). The effect of financial and corporate governance factors on the forced financial restatement likelihood:  Evidence from Malaysia. Journal of Nusantara Studies, 8(TI), 147-176. http://dx.doi.org/10.24200/jonus.vol8issTIpp147-176