The Impact of Institutional Investors on Real and Accrual Earnings Management around IPO: Evidence from Malaysian Emerging Market

Abstract

he study examines whether Malaysian IPO firms engage in real and accrual carnings management and determines the impact of institutional ownerships on the carnings management discretionary behaviour. The modified Jones (1991) and Roychowdhury (2006) models were used to investigate accrual and real activity behaviours. Institutional ownerships were classified into Conservative and Neutral Pressure Groups. The results indicate Malaysian IPO firms engage in both real and accrual camings around IPO corporate cvent. The multivariate analysis shows institutional shareholders constrain real and acerual camings management which supports the various regulatory reforms by Securities Commission and Bursa Malaysia. The study suggests the need to encourage the Neutral Pressure Group of institutional investors to engage more in sharcholders activism in order to safeguard the value of their investments and for investors to examine real activity behaviours in making their investment strategy while standard setters and regulatory agencies need to enforce additional measures to constrain real activity discretionary behaviour.