A Comparative Study for the Impact of IFRS Convergence on Accounting Quality between Malaysian PLC and Chinese PLC

  • Tan Kok Eng
  • Ooi Chee Keong
  • Tang Kin Leong
  • Aik Nai Chiek
  • Lim Wei Yin
  • Shen YiDan


The purpose of this research is to examines whether Malaysian PLC (fully converge to IFRS) could achieve better accounting quality as compare with Chinese PLC (non-fully converge to IFRS) or otherwise. And then further study on the relationship between the PLCs’ characteristics with accounting quality. Full samples of both groups consist of 2510 PLC and 17570 observations. Group FC (Malaysian PLC) consist of 420 PLC with 2946 observations and Group NFC (Chinese PLC) consist of 2090 PLC with 14204 observations.  This research used the Modified Jones model to estimate the absolute value of discretionary accruals (ABSDACC); a proxy for earnings management practice. Accounting quality decrease as earnings management practices in a PLC increase and vice versa. This research used OLS to test the hypotheses. Which includes earnings management (ABSDACC) as the dependent variable, and IFRS Convergence (CONVERGE) and some other variables (PLC’s characteristics) as the independent variables. The result clearly stated that the nexus between CONVERGE (IFRS Convergence) and accounting quality is negative and statistically significant. Hence, Malaysian PLC with full convergence to IFRS practising a lower accounting quality as compare to Chinese PLC. Furthermore, there is a statistical significant negative correlation between the accounting quality with leverage (LEV), profitability (ROA), earnings growth (GROWTH), and prior-year loss (LAGLOSS). Variable firm’s size (SIZE) is significantly positively associated with accounting quality. Percentage change in company shares (EISSUE) is significant but has no relation with accounting quality; while percentage change in company debts (DISSUE) also reported no relationship with accounting quality but insignificant. This study contributes to the literature by examining IFRS convergence in China and Malaysia are useful in evaluating whether fully converged to IFRS achieves its stated objective of fulfilling the financial reporting needs of emerging economies. And add to the literature by identifying the potential PLCs’ specific characteristics that are associated with accounting quality.


Abdullah, M., Evans, L., Fraser, I., & Tsalavoutas, I. (2015). IFRS mandatory disclosures in Malaysia: the influence of family control and the value (ir) relevance of compliance levels. Accounting Forum (Vol. 39, No. 4, pp. 328-348).
Abdullah, W. R. W., Maruhun, E. N. S., Tarmizi, M. A., & Rahman, L. A. (2018). Mitigating earnings management: adoption of IFRS and corporate governance practices in Malaysia. International Journal of Academic Research, 8(2), 760-772.
Ahmed, A. S., Neel, M., & Wang, D. (2013). Does mandatory adoption of IFRS improve accounting quality? Preliminary evidence. Contemporary Accounting Research, 30(4), 1344-1372.
Bagaeva, A. (2009). The IFRS and accounting quality in the transitional economy: The case of Russia. (May 6, 2009). Available at SSRN: https://ssrn.com/abstract=1400026
Ball, R., Robin, A., & Wu, J. S. (2003). Incentives versus standards: properties of accounting income in four East Asian countries. Journal of accounting and economics, 36(1-3), 235-270.
Barth, M. E., Landsman, W. R., & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of accounting research, 46(3), 467-498.
Bartov, E., Goldberg, S. R., & Kim, M. (2005). Comparative value relevance among German, US, and international accounting standards: A German stock market perspective. Journal of Accounting, Auditing & Finance, 20(2), 95-119.
Burgstahler, D., & Dichev, I. M. 1997. Earnings management to avoid earnings decreases and losses”. Journal of Accounting and Economics, 24(99): 99-125.
Callao, S. , & Jarne, J. I. . (2010). Have IFRS affected earnings management in the European union? Accounting in Europe: vol 7, no 2. Accounting in Europe.
Capkun, V., Collins, D. W., & Jeanjean, T. (2012). Does adoption of IAS/IFRS deter earnings management? Working paper HEC Paris: Department of Accounting and Management Control (Available at http://ssrn. com/abstract=1850228).
Chen, C., Lee, E., Lobo, G. J., & Zhu, J. (2019). Who benefits from IFRS convergence in China? Journal of Accounting, Auditing & Finance, 34(1), 99-124.
Cohen, J. (1992). Quantitative methods in psychology: A power primer. Psychological Bulletin, 112(1), 155-159.
Dao, T. H., P. (2005). Monitoring compliance with IFRS: some insights from the French regulatory system. Accounting in Europe, 2: 107-135.
Dechow, p. M., ge, w. & Schrand, c. M. 2009. Understanding earnings quality: a review of the proxies, their determinants and their consequences. Ssrn elibrary
DeFond, M. L., Gao, X., Li, O., & Xia, L. (2014). Did China's Adoption of IFRS Attract More Foreign Institutional Investment? Economic & Financial Issues
Doukakis, L.C. (2014). “The effect of mandatory IFRS adoption on real and accrual-based earnings management activities”. Journal of Accounting and Public Policy, Elsevier, Vol. 33, p. 551-572.
Ewert, R. & A. Wagenhofer, “Economic effects of tightening accounting standards to restrict earnings management,” The Accounting Review 80 (2005), pp. 1101–1124
Fama, E. F., & Jensen, M. C. (1983). Agency problems and residual claims. The Journal of Law and Economics, 26(2), 327-349.
Fourati, Y.M. & Ghorbel, R.C. (2017). The impact of IFRS-based accounting standards on earnings management: evidence from Malaysia. International Journal of Accounting and Economics Studies, 5(1), 1-6.
Francis, J. R., & Yu, M. D. 2009. Big 4 office size and audit quality, Accounting Review, 84 (5), 1521-1552.
Freeman, R.N., Ohlson, J.A., & Penman, S.H. (1982). Book rate-of-return and prediction of earnings changes: An empirical investigation. Journal of Accounting Research, 20 (2), 639-653.
Gay, G. D., Lin, C.-M., & Smith, S. D. (2011). Corporate derivatives use and the cost of equity. Journal of Banking & Finance, 35(6), 1491-1506.
Groppelli, A. & Nikbakht, E., (2006), “Finance”, 5th Edition, Barron’s Educational Series, Inc. New York
Hilton, A. S., & O'brien, P. C. (2009). Inco Ltd.: Market value, fair value, and management discretion. Journal of Accounting Research, 47(1), 179-211.
Healy, P., & Palepu, K. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31: 405−440.
Hessayri, M., & Saihi, M. (2015). Monitoring earnings management in emerging markets. Journal of Economic and Administrative Sciences.
Hou, Q., Jin, Q. & Wang, L. (2014). Mandatory IFRS adoption and executive compensation: Evidence from China. China Journal of Accounting Research, ISSN 1755-3091, Elsevier, Amsterdam, Vol. 7, Iss. 1, pp. 9-29,
Isaboke, C., & Chen, Y. (2019). IFRS adoption, value relevance and conditional conservatism: evidence from China. International Journal of Accounting & Information Management.
Jeanjean, T., & Stolowy, H. (2008). Do accounting standards matter? An exploratory analysis of earnings management before and after IFRS adoption. Journal of accounting and public policy, 27(6), 480-494.
Kao, H. S., & Wei, T. H. (2014). The effect of IFRS, information asymmetry and corporate governance on the quality of accounting information. Asian Economic and Financial Review, 4(2), 226.
Kousay, S. (2019), The impact of IFRS adoption on earnings management. Journal of Economics and Business, Vol.2, No.3, 540- 554. ISSN 2615-3726
Kuo, J., Ning, L., & Song, X., (2014). The real and accrual-based earnings management behaviours: evidence from the split share structure reform in China. The International Journal of Accounting, 49: 101-136.
Leland, H. E., & Pyle, D. H. (1977). Informational asymmetries, financial structure, and financial intermediation. The journal of Finance, 32(2), 371-387.
Li, S. (2010). Does mandatory adoption of International Financial Reporting Standards in the European Union reduce the cost of equity capital? The Accounting Review, 85, 607-636.
Malofeeva, T. N. (2018). The impact of IFRS adoption on earnings management in Russia. European Research Studies Journal, Volume XXI, Issue 2, pp. 147-164
Navarro‐García, J. C., & Madrid‐Guijarro, A. (2014). The influence of improvements in accounting standards on earnings management: The Case of IFRS. Australian Accounting Review, 24(2), 154-170.
Pelucio-Grecco, M. C., Geron, C. M. S., Grecco, G. B., & Lima, J. P. C. (2014). The effect of IFRS on earnings management in Brazilian non-financial public companies. Emerging Markets Review, 21, 42-66.
Ramanna, K., & Watts, R. L. (2012). Evidence on the use of unverifiable estimates in required goodwill impairment. Review of accounting studies, 17(4), 749-780.
Ross, S., Westerfield, R., Jordan, B., & Bley, J., (2013), “Essentials of Corporate Finance”, Middle East Edition, McGraw-Hill Education, Penn Plaza, New York.
Rossi, J. L. (2007). The use of currency derivatives by Brazilian companies: An empirical investigation. Global Conference on Business and Economics. ISBN 0-9742114-6-X
Singh, A., & Upneja, A. (2008). The determinants of the decision to use financial derivatives in the lodging industry. Journal of Hospitality & Tourism Research
Skinner, D.J., & Sloan, R.G. (2002). Earnings surprises, growth expectations and stock returns or do not let an earning torpedo sink your portfolio. Review of Accounting Studies, 7, 289-312.
Smith Jr, C. W., & Warner, J. B. (1979). On financial contracting: An analysis of bond covenants. Journal of financial economics, 7(2), 117-161.
Wan Adibah Wan Ismail., Khairul Anuar Kamarudin., Anuar Kamarudin., van Zijl, T. & Dunstan, K. (2013), "Earnings quality and the adoption of IFRS‐based accounting standards: Evidence from an emerging market", Asian Review of Accounting, Vol. 21 No. 1, pp. 53-73.
Wang, Z., Chen, M.-H., Chin, C. L., & Zheng, Q. (2017). Managerial ability, political connections, and fraudulent financial reporting in China. J. Account. Public Policy, 36 (2) (2017), pp. 141-162
Warfield, T. D., Wild, J. J., & Wild, K. L. (1995). Managerial ownership, accounting choices, and inform
Watts, R. L. & Zimmerman, J. L. (1990). Positive accounting theory: A ten-year perspective. Accounting Review, 65(1), 131-156.
Wu, G., & Liu, Z. (2014). The impact of international convergence of Chinese accounting standards on earnings management. Chinese certified public accountant (10), 49-53
Xiao, J., Hu, G., Chan, N., Gao, M., Li, D., Pan, M., Wei, G., & Zhao, L. (2017). Fair value accounting in China: Implementation and usefulness.
Zhao Y. (2018). Differences and convergence between Chinese accounting standards and international accounting standards. Enterprise reform and management, 01 (No. 318), 122-124
How to Cite
KOK ENG, Tan et al. A Comparative Study for the Impact of IFRS Convergence on Accounting Quality between Malaysian PLC and Chinese PLC. International Journal of Advanced Research in Economics and Finance, [S.l.], v. 3, n. 4, p. 1-16, dec. 2021. ISSN 2682-812X. Available at: <https://myjms.mohe.gov.my/index.php/ijaref/article/view/16346>. Date accessed: 27 jan. 2022.