Abstract
earnings management (AEM) of listed companies in the main market of Malaysia. The study sample consists of 300 companies with the lowest positive earnings measured by the ratio of return on assets from 2013 to 2015. It uses three proxies for AEM, namely, the Jones Model, Modified Jones Model (MJM) by Dechow, Sloan, and Sweeney (1995) and MJM by Kasznik (1999). For REM, the study uses the aggregate value of Roychowdhury (2006). Random effect panel data regression was run to test whether AEM and REM are used as complementary or substituted techniques in manipulating earnings reporting. The results of the study provide evidence of a significant positive relationship between REM
and AEM, which supports the complement hypothesis. The same results are found in both the model of AEM, where REM is included as an independent variable, and in the model of REM, where AEM is included as an independent variable. These results indicate that managers jointly use these two techniques of earnings management when they prepare financial reports. The findings could be of importance to policy-makers, regulators, investors and practitioners in all countries, but particularly in Malaysia, by indicating the extent of and relationship between AEM and REM practices in Malaysian firms.
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