Audit Committee Diversity, Analysts' Forecast Accuracy and Earnings Management: Evidence from Malaysia

This paper aims to investigate the effect of audit committee ethnicity, as part of the diverse cultures in Malaysia, on analysts' forecast accuracy. In addition, this study investigates further the interactions between the unique cultures in Malaysia and earnings management to determine whether audit committee ethnicity still plays a role in earnings management. Based on 391 observations of firms followed by analysts from the year 2012 to 2014, our result indicates that firms dominated by Bumiputera audit committees have a higher analyst forecast error. In addition, we found that firms manage earnings to meet analysts' forecasts, which is significant for firms dominated by Bumiputera audit committees. The results add new evidence on the effect of audit committee ethnicity on financial reporting quality in the multiracial country of Malaysia.