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The principle role of financial reporting is to provide investors with useful information for investment decision makings. In this study, we examine whether corporate governance moderates the relationship between firm characteristics and financial reporting quality. We use earnings management as measure for financial reporting quality. This study uses secondary data obtained from Thompson Database. The sample of this study is firms listed on the Main Market of Bursa Malaysia from 2012 to 2015. The results of our study reveal that there is a positive value of abnormal cash flow which indicates that companies do practice earnings management through manipulation of cash flow from operations. Large firms are practicing earnings management. Factors such as many business segments and business complexity have encouraged large firms to manage their earnings by manipulating their cash flow from operation. In contrast, firms with high leverage and firms audited by Big 4 are less likely to involve with earnings management. Interestingly, when corporate governance index is used as moderating variable, our result shows that only firms audited by Big 4 are related to earnings management. In terms of the contribution of the study, this study is important for the development of Malaysian capital market and it help investors to better understand how the impact of corporate governance mechanisms on financial reporting quality varies across firms.

Firm Characteristics and Financial Reporting Quality: The Moderating Role of Malaysian Corporate Governance Index