Board Independence, CEO Duality and Accrual Management: Malaysian Evidence

  • Hafiza Aishah Hashim
  • S. Susela Devi


This paper focuses on two important characteristics of board
effectiveness: (1) the proportion of independent non-executive
directors; and (2) CEO Duality. The objective of this study is to examine
whether the presence of a majority of independent non-executive
directors and the separation role between chairman and CEO, as
recommended in the Malaysian Code on Corporate Governance
(MCCG) 2000, effectively constrains the incidence of earnings
management as measured by income-increasing and incomedecreasing
discretionary accruals. Using data from the top 200 nonfinancial
companies listed on Bursa Malaysia’s Main Board and Second
Board for the year 2004, this study finds a positive significant result
of board independence when firms undershoot target earnings.
Although contradictory to the prediction of agency theory, the results
show that a higher proportion of independent non-executive directors
is associated with higher income-increasing earnings manipulations.
Neither board independence nor CEO Duality was found significant
in other models tested regarding income-increasing and incomedecreasing
earnings management. The results of this study cast doubt
on the notion that the independence of directors and the role
separation between the chairman and the CEO reduces the incidence
of earnings management activity, especially with highly concentrated
ownership as is typical in Malaysia.
Keywords: Accrual Management; Corporate Governance; MalaysiaJEL classification: M41

How to Cite
HASHIM, Hafiza Aishah; DEVI, S. Susela. Board Independence, CEO Duality and Accrual Management: Malaysian Evidence. Asian Journal of Business and Accounting, [S.l.], v. 1, n. 1, p. 27-46, june 2008. ISSN 2180-3137. Available at: <>. Date accessed: 24 aug. 2017.