Material accounting misstatements: Do managerial overconfidence, financial distress, and corporate governance practices matter?

Author:

Nor Azhari Nadiah Amirah1,Hasnan Suhaily2ORCID,Mohd Sanusi Zuraidah2ORCID,Mohamed Hussain Alfiatul Rohmah2ORCID,Al-Dhubaibi Ahmed Abdullah Saad3ORCID

Affiliation:

1. Cawangan Operasi Pelaburan

2. Universiti Teknologi MARA

3. Prince Sattam Bin Abdulaziz University

Abstract

This study examined factors related to the occurrence of material accounting misstatements in Malaysian public listed companies (PLCs). Two factors, motivation and opportunity, were assessed in this study. According to Jensen (1993), as the consequences of material accounting misstatement can be extremely detrimental to the firms and their employees, the occurrence of such affairs must be driven by strong motivation and a great opportunity. The motivation factors consist of managerial overconfidence and financial distress, while the opportunity factors include internal and external corporate governance practices. A total of 103 misstatement and 103 non-misstatement firms, gathered from 2010 to 2018, were examined. Univariate and binary logistic regression analyses were deployed to test the hypotheses. Evidently, highly financial distress, a higher proportion of board independence, the practice of CEO duality, and a larger size of borrowings exerted a significantly positive relationship with material accounting misstatements. Interestingly, a higher proportion of independent board members encouraged the likelihood of material accounting misstatements instead of mitigating such mishaps. This study provides insights to regulators on the efficacy of corporate governance practices in curbing material accounting misstatements. The study addresses the element of managerial overconfidence, which was previously limited to studies on capital structure and leverage decisions.

Funder

Universiti Teknologi MARA

Publisher

Virtus Interpress

Subject

Earth and Planetary Sciences (miscellaneous),Management Science and Operations Research,Decision Sciences (miscellaneous),Strategy and Management

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