Date of Award


Degree Type


Degree Name

Doctor of Philosophy


School of Accounting, Finance and Economics


Business and Law

First Advisor

Professor Malcolm Smith

Second Advisor

Dr. Zubaidah Ismail


This thesis examines whether ownership concentration, board of directors, audit
committee and ethnicity of directors affect conservative accounting. Additionally,
this thesis examines whether the impact of firms’ governance on conservatism is
moderated by ownership concentration. Previous evidence has suggested that
conservative accounting controls the agency problem, but so far, there is no
evidence that it is applicable in Malaysian firms, as firms are closely held by the
controlling shareholders.

This thesis employs panel data on Malaysian listed companies observed over
seven years from 2001 to 2007. Malaysian firms are chosen as the sample
because they provide a useful setting for the study of ownership concentration and
enable us to identify whether strong governance attributes in firms with
controlling shareholders function effectively.

Conservatism is measured using two approaches: (a) an accrual-based method
from Givoly and Hayn (2000) and (b) asymmetric timeliness from Basu (1997).
Substantial shareholders are used to proxy for ownership concentration, and are
classified into: (a) inside shareholders who are executive and non-executive
directors, and (b) outside shareholders who are not involved with the
management. Four characteristics of the board of directors are identified: board
composition, board size, board skill (proxied by board tenure, board financial
expertise and multiple directorships) and CEO duality. Three characteristics of
the audit committee are specified: audit committee composition, financial
expertise and audit committee meeting. This thesis focuses on two ethnic groups:
Malay (Bumiputera) and Chinese directors, who sit on the board of directors and
the audit committee.

The empirical results show that the existence of controlling shareholders can lead
to significantly lower accrual-based conservatism, but they do not influence
asymmetric timeliness. In contrast, none of the board and audit committee
attributes appear to determine accrual-based conservatism; but board composition, board financial expertise, audit committee composition, audit committee financial
expertise and audit committee meeting are significantly associated with
asymmetric timeliness. Results in this thesis surprisingly show that, independent
directors on the audit committee are associated with lower asymmetric timeliness
and this finding remains after using alternative measures. This thesis provide no
evidence that board size, board skill (proxied by directors’ tenure and multiple
directorships) or CEO duality are associated with conservatism. The ethnic
groups influence conservatism but the evidence is mixed, implying that there
could be other factors that explained the directors’ behaviour than their ethnicity
per se. The analysis of the moderating effect confirms that firms’ governance has
positive influence on conservatism. However, ownership concentration
negatively moderates the relationship between firms’ governance and

The implication from these findings is that the great power that the controlling
owners exert may diminish the role of financial reports in controlling and
monitoring the management. The merits of conservatism as a governance
mechanism do not seem to function appropriately when its application is
determined by the controlling parties, who are supposed to be subject to its
control. Policy makers and regulatory bodies should interpret this evidence as
motivation for them to strengthen their enforcement of legal shareholder

Included in

Accounting Commons


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