Information Asymmetry and Earnings Management: Causes of Inefficient Investment in Malaysia

Abstract

Abstract: Using data from 1998 10.2004 from 180 manufacturing firms, th paper provides ‘evidence that insiders, with controlling interest of more than 36.78 per cent, increase camings management (discretionary accruals) by 10.6 per cent. However, they appear to be risk-adverse and avoid inefficient investment after the financial crisis. On the other hand, firms in high concentrated industries accelerate information asymmetry, but do not engage in camings management. Ou findings show that investment in Malaysia is dominated by inefficient investment. Through earnings management which inflates stock prices, firms increase investment at the expense of external shareholders as stock returns diminish before external shareholders realise the actual value of the firm's performance. A fim with negative stock returns is associated with a 37.6 er cent increase in discretionary accruals, which in turn leads to an additional 3.6 per cent n inefficient investment.