REAL EARNINGS MANAGEMENT IN FAMILY GROUP AFFILIATION: A RESEARCH PROPOSAL

Abstract

Financial frauds and reporting quality of annual reports continue to be topics of interest in business and accounting research. Financial manipulations involving both Accrual Earnings Management (AEM) and Real Earnings Management (REM) are getting the attention of both the corporate sector and the public due to the continuing complexity of business structures and arrangements. To date, research on managing real earnings through business group affiliation is still scarce and largely unexplored especially in developing countries. Previous studies suggest that family group affiliation contribute to the earnings manipulation. This is a major concern in Malaysia since more than fifty per cent of its publicly own companies are dominated by family group businesses. This unique characteristic and the limited research on REM provide the main justifications for this study. The primary objective of this article is to present the literature on REM and propose a new research model to further highlight the influence of family group affiliation on REM activities in listed companies. The new research will cover a ten-year period from year 2006 until 2015 which coincides with different market conditions. These different environments may affect REM practices differently and the findings are expected to provide new insight on REM behaviour of family group affiliated companies in different market conditions. This study will enhance awareness and knowledge of REM and assist policy makers in improving the current governance mechanisms thus, strengthening the regulations and governance strategies in the capital market.