Corporate Governance, Earnings Quality and Firm Value: Evidence from Malaysia

Agency theory which states that the separation of managers and shareholders surrounding corporate organisations creates information asymmetric that can lead to agency problems in term of moral hazards and adverse selection problems which contribute to risk factors that can affect investors/shareholders expected cash flow, cost of capital and hence the firm value. Theoretically, corporate governance comes into place as a set of mechanisms to reduce agency problems in a way that managers’ behaviours could be monitored and controlled to reduce information asymmetric which attributed to the risk factors and can lead to increased firm value. However, previous studies are not conclusive to establish a concrete stand on it. The objective of this thesis is to gain an improved understanding on the exact nature of the relationships that exist between specific corporate governance mechanisms and firm value by considering multiple mediating factors of different attributes of earnings quality representing the risk factors that mediate the relationship between the elements of corporate governance mechanisms and firm value. Specifically, this thesis aimed to investigate whether the direct relationship between specific corporate governance mechanisms and firm value is more significant compared to the case when this relationship is based on the mediating effects of different earnings quality attributes, this will help firms in determining the importance of such mechanisms of corporate governance and attributes of earnings quality and how they are actually priced in the capital market.