My dissertation question "Does the timeliness of financial reporting made by listed companies impact their share price in emerging markets like Malaysia?"

Timeliness of financial reporting
University of Westminster
Westminster Business School
W1592755
Current Themes of Accounting
Contents
Introduction-Background    3
Literature Review    4
Research Objectives and Research Questions    11
Research Design    12
Data collection and analysis    14
Timescale    15
References    16
Topic: "Does the timeliness of the financial reporting made by listed companies’ impact their share price in emerging markets like Malaysia?
Abstract
This study responds to the empirical test requirements for discretion in disclosure policies, especially in different contexts. There is a growing body of literature on corporate governance issues; discussions on the role of directors in the publishing process have not been thoroughly explored. This study examines the determinants of audit delay among Malaysian public listed companies. Specifically, the study examines the relationship between audit delay and audit opinion as well as the characteristics of audit committee independence, the frequency of meetings held during the financial year and the financial literacy of audit committee members. The main reason for this study is to test whether disclosure theory applies to emerging managers' discretionary choices when issuing financial statements in emerging capital markets.
Introduction-Background
Businesses from emerging market have a tendency to publish reports with scarce data at a sedate pace due to lax enforcement on Due to lax enforcement and sanctions on investor al incomplete data trading in investor protection and sanctions for insider trading. Therefore, well-timed reporting is the important mode of alleviating insider leaks, trading and rumors in this market. On the contrary, developed capital markets such as the United States of America (USA) do not face such problems due to the intricate and strict financial reporting standards they have to comply (Ahmad BaharulUlum, 2013). Its contribution is to extend a work of the Owusu-Ansah (2000) with a focus on particularly selected variables to cover the disclosure theory of the proprietary prizes, information prize savings, moreover relative impacts of favorable and adverse news (Binti Abu Bakar and Rosbi, 2014).
Literature Review
The literature on the timeliness and impact factors of the company's annual financial reports has been studied around a world. Company size, as well as operational complexity, is used to explain the timeliness. Within the year 1960 to 1974, timeliness of reports from 210 industries listed on the New York Stock Exchange (NYSE) improved (Mohd Kamal, 2013). Mrzygłod and Nowak 2013 found negligible relationships in his research. Companies spent nearly four months of financial year reporting to a shareholder by examining a relationship among four additional companies attributes (Mrzygłod and Nowak, 2013). Attributes examined include company age, the number of shareholders, yearly report pages or company. Mrzygłod and Nowak founds that none of the elements examined were importantly related to the auditor's signature lag. In addition, authors found that the businesses in fuel or energy and financial companies are fast journalists, while companies in mining, exploration or service industries are journalists.
American Accounting Association views timeliness as the qualitative characteristic of helpful information (Olbrys, 2013).Additionally, Olbrys (2013) stated that framework of accounting standards set by IASB considered timeliness as the characteristics of determining timeliness. This standards set by IASB is particularly significant for listed businesses because theinvestors require time as well as reliable data to make the right decision for their investment in the stock market. The Malaysian Accounting Standards Board (MASB) emphasizes that it is not possible to provide users with the usefulness of financial statements for a reasonable time of period after the date of the balance sheet (PikHar and Wei Chih, 2016).
In a company, there are circumstances where an employee could be taking up two roles; managing director and chairman of the board of directors. Such situation raises concerns between the management of a company and could be view from two perspectives. Representatives of the agency theory argue for the separation of both roles to provide the necessary controls and balance of management performance (Olbr, 2013).
Additionally, when the task is linked, the CEO can be able to shape a company to achieve the set goals, as there will be less interference (Ahmad Baharul, Ulum, 2013). Their arguments are based on stewardship theory, in which manager’s act in the best interests of society and shareholders, and the duality of roles increases the effectiveness of counseling (Ahmad Baharul, Ulum, 2013). In short, those who favor the duality of roles rely on stewardship theory unlike the theory of an agency that considers executives as opportunistic shirkers. The theory of stewardship has a more positive perspective by seeing the director as a guardian of corporate assets and wanting to do the best for society. Therefore, combined roles would not be a problem. However, the separation of tasks between the Bureau and the Chief Executive Officer will help to increase the quality of monitoring and reduce the benefits of detention thereby improving the quality of reporting. In the Malaysian context, the duality of roles in listed companies is not particularly common but the potential impact on disclosure is considered a good test.
Segment reporting in Malaysia was compulsory in 1987. In the past, this disclosure was only voluntary, since the 1965 Act on Companies did not include any provision regarding the publication of segment reporting. Such disclosure would be a disadvantage the competitive position of the intelligence company. A competitive disadvantage is any event that deprives a company of a competitive advantage as a whole or a part thereof, any activity that confers a competitive advantage on other persons and any opportunities that lead to the costs borne by the company as compared with its competitors.
According to Starbiz (2012), industry experts agreed that failure to release audited reports on time by listed companies is unacceptable. The timely publication of company's entity audited financial information depends on the time required to finish the audit (Qian and Diaz, 2017). Without the audited reports, financial statements can’t be publicly published for internal or external stakeholders to view. The length of audit is a determinant of timeliness and plays a dynamic role when it comes to announcing entity earnings.
The Malaysian exchange has proposed to reduce the timetable for issuance of audited financial statements from four to two months. The purpose of these papers is to study the extent of delays and audit delays in Malaysian listed companies and the factors associated with such delays (Binti Abu Bakar and Rosbi, 2014). Delay reporting on insider trading and opportunities to misappropriate company assets. Timely reporting helps reduce the adverse effects of the moral hazard as well as the effects of the adverse selections(Mrzygłod and Nowak, 2013). It represents voluntary decisions related to company disclosure or can also, be used to test the theory of the disclosure decision. All other things being alike, it may be predictable that everycompany will disclose data as fast as possible to ignore adverse selections. It is expected that favorable news may be reported before the adverse news (Mrzygłod and Nowak, 2013).
According to Diamond (1985) it is best to disclose more to prevent any speculation from investors and brokers. By doing so, it allows one to reduce the overall information cost to improve Pareto.The analysts are informedbetter; their forecast converges as well as there are threat-sharing advantages. Butcompany dynamics might affect the release of data. Depends on entering game scenarios, businesses that are less afraid of probable entrants will alsoreact to market demand for timely data (Ali, Akbar and Ormrod, 2016).
In Malaysia and other parts of East Asia, corporate transparencies have became a very significant problem after the 1997 economic crisis. Identified the significance of the timeliness of the report, the MASB stated in MASB Malaysian Accounting Standards Board (1999) that failure to provide economical statements to the public within reasonable time period would undermine the usefulness of the financial statements. (Alzoubi, 2012). The standards stipulate that audited accounts must be submitted to the Malaysian stock exchange within 6-monthdateof the balance sheet. Malaysian Stock Exchange requires all local companies to submit its yearly audit accounts along with the entity auditors and director reports within four months from the end of its fiscal year for the public to view (Dobija, 2018).
The ASX Corporate Governance Committee (2003) pointed out that well-governed companies tend to be more equitable when disclosing news in a timely manner. Thus making them more transparent to the public. Malaysia's corporate governance awareness was also reflected in the 1990s in comparison with developed markets and became stronger after the financial crisis in 1997(Jacek, 2015). Since the 1997 financial crisis, Malaysia has been leaning towards a better governed financial system (Jacek, 2015). The crisis prompted the government to introduce a series of institutional change such as the establishment of Senior Finance Committee in 1998. In 1999, the committee adopted the "Corporate Governance Report" which is mandatory for listed companies to adopt. In the following year, it was issued as the Malaysian Code on Corporate Governance. It includes a set of principles and optimal practice of good governance. Listed businesses are required by the Malaysian Stock Exchange to declare compliance or non-compliance with the Malaysian Code in their annual reports (Kopecká, 2016). Additionally, businesses are required to issue the periodical reports within two months after the end of every fiscal quarter. With the changes stated above, it promotes companies to reveal their financials in a timely manner; with transparency taken into consideration (Kouki, 2015). Jensen (1993) believes that that board composition and board leadership are related to board supervisory incentives. Therefore, this report intricately investigate how timeliness commensurate with the role of an employee, board of director and the review committee (Dobija, 2018). Within similar time frame, listed companies had to comply with International Accounting Standards (IAS) 14 on top of the corporate governance code (Outa, 2011).
The focus of the debate is on a non-executive director who may be also independent of the management and provide checks or balances; should supervise moreover control the conduct of selfish executive director on the behalf of exterior shareholders (Pervan, 2013). Malaysia provided an ideal environment for investigating the impact of family business property moreover board composition on corporate transparency(Alzoubi, 2012). Financial reporting is the finest way to meet the requirements of the accounting information user. It helps internal and external stakeholders of an entity to forecast and plan financially to prevent bankruptcy from occurring (Gad, 2016).
It describes the company yearly financial events that affect the company's events. At the same time, it helps with financial forecasting and financial planning, treating all users as alerts, whether internal or external, to ignore potential bankruptcy (Gad, 2016). Financial disclosure is defined as the voluntary or mandatory release of the financial data to its stakeholders. It includes many information regarding a company and usually consist of qualitative or quantitative data (Hamidzadeh and Zeinali, 2015).
Therefore, due to the large amount of information provided by financial markets rumors usually precede major financial information disclosure with the aim of increasing competition to increase demand for stocks (Jacek, 2015). Batayna and Qaqesh (2006) stated that Palestinian Stock Exchange and Amman Stock Exchange is considered to be an emerging financial market. Such exchange does not comply with provision of Financial Markets Act. (Kopecká, 2016).
Research Objectives and Research Questions
The present project is designed to attain the following objectives:
1. To find out the timeliness of the financial reporting made by the listed company’s impact their share price within the emerging markets like the Malaysia.
2. To examine the internal audit committee, have an impact on timeliness of the release of the yearly financial report?
3. To identify practical measures that the authorities as well as stakeholders should take to develop reporting practices of the Malaysian listed companies.
4. To determine how the Malaysian government initiates major corporate governance reforms to promote disclosure transparency.
Research Questions
Hence, it will also try to find these elements by answering following questions:
1. Does the Malaysian company avoid providing segment reports in its financial statements?
2. Does the proprietary cost motivation and agency cost motivation dominate the practice of Malaysian companies not to disclose segment reports?
3. Do the companies that do not provide segment reports get high profits or low profits?
4. What extent and nature of audit delays among Malaysian Main listed companies?
Research Design
Taking into account the application of research, it can also be divided into the two kinds of pure or applied research. Basic or Pure research may be defined as a study that explores a subject without some end users. This is done by experts to learn about curiosity or personal interests. Applied research is a study conducted to identify a specific purpose or solve a particular issue. The research being considered is an applied research because it is likely to identify the reasons for the workers turnover and its solutions. In addition to applied research, this study is a descriptive study as it collects data from secondary or primary sources and analyzes and systematically describes it in order to draw the conclusions about research objectives. The reason for this descriptive study is to identify the opinions and behaviors of certain working groups in the industry. There are basically two kinds of research designs, qualitative and quantitative. Qualitative research includes the presentation of information and data collected to identify the validity of the research questions moreover their solutions. Such research does not measure data in statistical form. Quantitative research on the other hand collects and analyzes data from many resources available.
For the current study population will be all stakeholders of selected organizations. The data collection methods for study are through the survey as used in quantitative methods. The sample for collecting response wills beselect according to convenient way. Random sampling out of probability sampling is used as a sampling technique, according to definition random sample is a subset of the population and its every member has equal possibility of being selected. Presented data will be check for reliability by application of Cronbach’s Alpha, in which reliability values of items should be within 90% with to be acceptable.
Data collection and analysis
Data collection is the process of collecting and measuring data related to variables determined during the research process. The two essential sources of the data compilation are secondary and primary sources. This study involved collecting data from key data sources as well as some secondary publications. The main source is to provide first-hand information on the subject, which was not used by some other experts before. Second-hand information refers to books, journals, articles, publications, newspapers or websites that have been reviewed or published by preceding experts on the same subject (Lowry, 2015).Data collection tools rely on quantitative research designs in our case. Alternatives that researchers can use for information collection are surveys, interviews, observations, focus teams, and more. Here, data collection tool will be a questionnaire. This specific study will use a sampling method of probability, in which there is a similar likelihood of selecting each sample unit. The probability pattern depends on the choice of researchers. We use a simple random sample method to select a sample. Studies include all USA accounting companies in USA. For the purpose of research, the pattern size of 20 to 50 Malaysian organizations is drawn randomly from the population.The sample size will indicate that the research objectives are reasonable and sufficient to represent the population framework of the study. The collected data will then be statistically analyzed by frequency analysis and using some ratio tests. The data will then be presented in the form of graphs and maps to give a simple conclusion at a glance.
The samples considered in this study include all publicly traded Malaysian companies scheduled on the Second Board and Main Board of Malaysia Stock Exchange (known as the Kuala Lumpur Stock Exchange). Data comes from the company's annual report, and the fiscal year ends in the same year. The information for this study depends on the Board of Directors' 2006-2007 annual report. The annual report is from the website of the Malaysia Stock Exchange. This period was chosen due to two elements; the revision of corporate governance guidelines related to composition of the audit committee that began in 2006 can more effectively monitor the timely submission of annual accounts and adopt international in Malaysia from1st January 2016.
Table 1: Analysis of Annual Reports forMain Board Companies
Source: researchgate.net
As shown in Table 1, only 2.4 % of audit reports were delayed, and there was a slight increase in 2006 compared with 2007. One of the companies repeatedly delayed the audit within two years. The rest of the company was postponed for the first time. Descriptive analysis is only performed because the number of the companies with review delays is too very small to perform statistical testing.
Table 2: Types of Audit Opinion Associated with Audit delay
Source:researchgate.net
Of the 15 companies that were delayed in auditing, only one-third of the companies received unqualified opinions, and slightly more than half of the companies received an EOM report indicates that the most of the audit delays were associated to financially distressed businesses. In 2007, the company was evenly distributed between un-qualified review opinions. Subsequently, review opinions other than unqualified audit opinions that are primarily related to audit delays often convey signals of problems or bad news.
From the perspective of the company's distribution, audit opinion seems to be related to the audit delay, which is reliable with the results of earlier studies, one of which indicates that the qualified audit opinion was released after unqualified (Soltani, 2002).
Table 3: Mean Delay and Types of Audit Opinion
Source:researchgate.net
From Table 3, the average number of days of delay is calculated by dividing the number of days of the delay by number of businesses in a certain category. It can be seen that the companies with unqualified audit opinions have shorter average delays than companies with the audit opinions. These data appear to be consistent with previous studies that show that the more severe the qualifications, the superior the delay. Longer the audit report of companies with uncertainties in the audit report lags behind (Leventis et al., 2005).
Table 4: Audit committee characteristics
Source:researchgate.net
The number of the independent directors, the number review committee meetings held in this fiscal year, or the number of the experienced directors on board of directors. Companies with the audit delays and businesses without the audit delays appear to have no significant differences in the characteristics of the audit committee. This may be an effort by the company to comply with corporate governance guidelines, especially after its revision may result in all audit committees appearing the same.
Regardless of Malaysian Code amended on 1st October 2007, board of directors must establish aaudit review committee such committee must include at least 3 members whom are either independent or non-executive director. 100% compliance has been completed. This may not be easy to follow because it is difficult to get a suitable candidate.
Descriptive statistics: Statistics for sample businesses during the study period. The average audit delay is 115 days and the shortest delay is 20 days. According to reports, the best ever delay was 442 days. Only nine companies were found to be audited for more than 180 days, which may violate the rules of the Malaysian Exchange for a minimum period of six months. At the same time, the average total assets were RM11.4 billion with a standard deviation of approximately RM381 million.
Table 5: Descriptive statics for the dependent and variables
Source: researchgate.net
According to the linear regression analysis shown in a Table (5), it was found that the independent variable as a group had an influence on dependent variable; wherein Sig <5% note that independent variable explained 48% of dependent variable, moreover this percentage are acceptable.
There is no important relationship between the timeliness of disclosure of economic reports as well as element associated to business characteristics. This result is consistent with the other studies.
- There is no relationship between variables (company size, company probability, company leverage). The results are due to the following reasons:
1. These companies hired excellent employees to prepare yearly financial report at time.
2. The outer review company gives the large company more time to avoid postponing the release of the yearly economic report. As a result, the business has become professional and faster to publish annual economic reports. The result of the regression analysis has shown that TPI, WAC, and company size have an important correlation with the 95% confidence reporting segment reporting standard in 2000. This means that there are competitive disadvantages as companies publish segment information. Even though, this coefficient is not at all significant with the exception of 2001. Moreover, the positive coefficient shows that the level of competitiveness of the company or the financial performance is improving as the segment quality is declining.
Table 6: There is no relationship between variables (company size, company probability, company leverage)
Source:researchgate.net
In the accounting standards used in the segment reporting, the analysis showed that when the significance level in 2000 was 95%, the negative coefficient was 213.99, indicating that the performance of the reporting company declined as the company adopted a wider standard (Adzrin, Raja Ahmad and AnuarKamarudin, 2014). In contrast, the positive coefficients of 5.44 (2001) and 2.10 (2002) reveal an increase in the company's level of competition as they use more stringent accounting standards to manage segment disclosure (Adzrin, Raja Ahmad and AnuarKamarudin, 2014).
Companies in the Malaysian trade sector disclose relatively more companies than in other industries. A possible explanation for this finding may be politically motivated, because during the study, the country's mantra was “big thinking”; leading to the growth of famous large-scale projects, giving priority to local construction companies. Despite this, in addition to construction companies, trading companies disclose more than all other industries (Leventis, 2005). The independent variables are divided into three categories: corporate governance, cultural governance, and corporate governance. Since the previously published research on disclosure did not take into account corporate governance and cultural factors, the researchers decided to conduct personal interviews with the six financial directors and four consultants involved in the preparation of the annual report in order to determine their applicability and relevance. These variables are in the analysis of Malaysia's disclosure practices. All corporate governance and cultural factors are considered relevant to the analysis (Adzrin, Raja Ahmad and Anuar Kamarudin, 2014).
Conclusion
This study examines the extent and nature of audit delays among Malaysian Main listed companies. Segment reporting is done by reporting financial information of an entity according to the divisions. The Malaysian Accounting Standards Board defines segment information as information about different types of business products and services and their activities in different geographical areas. Characteristics of audit committee between companies with audit delay and companies without audit delay do not appear to be very different. Though there is enhanced compliance in the code of corporate governance especially after its revision, it is undeniable that compliance merely in form and structure is somehow easier than in substance. Whether the enhanced compliance has caused the audit committee to function more effectively in reducing audit delay or not is still unknown. Transnational and highly diversified companies are struggling to make larger segment information available in their financial statements. Different diversification activities of companies in different industries or in different geographic areas raised the question of whether aggregated accounting data is appropriate for companies comprised of different activities in different locations. While disclosure of segment information is beneficial, several arguments have been put forward against this publication around the world. Some arguments apply to all companies; others only apply in certain situations. One of the main arguments is that the higher costs of compiling, processing, and spreading segment information outweigh the potential benefits. However, the most important argument is that disseminating segment information is likely to benefit existing or potential competitors. Such disclosure would be a disadvantage to the competitive position of an intelligence company. As timely information release is necessary for effective investment decisions and a well-functioning financial market, the respective regulators should make it compulsory for the listed companies to announce their corporate reports on the market’s website on a timely basis and ensure that proper monitoring activities are in place. This study is not without limitations such as data collection method, limited sample size and statistical test used. Future research is recommended to overcome such limitations and extend this study to better understand how timeliness of the financial reporting made by listed companies’ impact their share price in emerging markets like Malaysia.
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