After ENRON: Empirical Examination on Earnings Conservatism in Malaysia

Malaysian Accounting Review, Vol 9, No 1, 2010

23 Pages Posted: 19 Aug 2015

See all articles by Effiezal Aswadi Abdul Wahab

Effiezal Aswadi Abdul Wahab

Curtin University - School of Accounting

Dr Mazlina N Mat Zain

Multimedia University

Marziana Madahmarzuki

Universiti Teknologi MARA

Date Written: October 22, 2010

Abstract

The failure of ENRON and subsequent demise of Arthur Andersen has renewed interest in earnings and audit research. This study examines the impact of ENRON debacle on earnings conservatism in Malaysia. We hypothesized that in the period after ENRON, the auditors and managers of the firms have incentives to report more conservatively to avoid risk of litigation and to protect reputation capital. Based on a sample of 1043 firm-years over the period of 2001 and 2002, we find that, on average, firms do report more conservatively in 2002. In addition, evidence suggests that former Andersen clients report more conservatively in 2002 relatively to non-Andersen clients. Further, we document similar results for firms switching to from another Big 4 to another Big 4 auditing firm in 2002. Finally, we discover firms that did not switch in 2002 do report more conservatively in 2002. We conclude that the ENRON debacle have a profound impact on firms to report more timely earnings.

Keywords: Malaysia, Arthur Andersen, conservatism, earnings quality.

JEL Classification: M42

Suggested Citation

Abdul Wahab, Effiezal Aswadi and Mat Zain, Mazlina N and Madahmarzuki, Marziana, After ENRON: Empirical Examination on Earnings Conservatism in Malaysia (October 22, 2010). Malaysian Accounting Review, Vol 9, No 1, 2010, Available at SSRN: https://ssrn.com/abstract=2645830

Effiezal Aswadi Abdul Wahab (Contact Author)

Curtin University - School of Accounting ( email )

Australia

Mazlina N Mat Zain

Multimedia University ( email )

Jalan Multimedia
Cyberjaya, Selangor 63100
Malaysia
+60383125798 (Phone)
+60383125590 (Fax)

Marziana Madahmarzuki

Universiti Teknologi MARA ( email )

Bukit Ilmu
Machang
Kelantan, 18500
Malaysia

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