Nurul Azlin Azmi, Nor Balkish Zakaria, Zuraidah Mohd Sanusi, Rizqa Anita
Purpose: The presence of political intervention and family ownership domination in the capital market has created a unique business environment in Malaysia. The political intervention and family ownership control created Type I and Type II agency problems among controlling shareholders, minority shareholders, and stakeholders. This study aims to examine earnings management (EM) behaviour among politically connected firms and family firms in Malaysia. Methodology/Approach: This study adopts a quantitative approach by using 624 firms listed on main market Bursa Malaysia. The period of this study covers from 2013 to 2017 with final data set comprises 3,120 firm year observations. A fixed effect model of panel regression analysis is used to investigate the research questions. Findings: The finding reveals that politically connected firms have high prevalence involved in earnings management activities than non-politically connected firms. Meanwhile, family firms have prevalent to be involved in earnings management of performance-matched discretionary accrual. In addition, the presence of politicians in the family firms is able to moderate the effect of earnings management in the family firms. The findings have an important implication to regulators as it suggests that the presence of politician in the boardroom and high family ownership can influence earnings quality. This study also provides positive signals to the regulator’s governance initiatives to limit politician involvement in the business and thus alleviates agency problems. Significant Contribution: This study contributes to the body of literature by focusing on the political regime after the 13th general election and the effect of political intervention in the family business in Malaysia.