Creative Accounting and Financial Performance of Public Listed Companies in Malaysia

Abstract

Worldwide corporate failure has become one of major issues discussed related to excessive practice of creative accounting. Creative accounting is conducted with the intention to indicate company performance aligned with the companies’ objective. This empirical study is conducted with an objective to examine the relationship of creative accounting practices (proxied by income smoothing and tax avoidance) and the impact of financial performance (measured using return on assets) of Malaysian public listed companies. Income smoothing and tax avoidance are some of the important elements being discussed together with creative accounting practices and financial performance. Using 409 public listed companies on Bursa Malaysia, secondary data was collected from data stream and from the information disclosed in the website of the sampled public listed companies. Agency theory is used to support the analysis and results of the research. Descriptive and inferential analyses were performed by using Statistical Package for Social Sciences Software (SPSS) to test variables under study. The result indicates that income smoothing does influence the financial performance of Malaysian public listed companies. The result of this study could benefit the policy maker in order to responsively react on any issues and provides specific guideline for the companies in applying certain judgment by referring to the accounting standard.