The Pricing of the Real Earnings Management Evidence from Malaysian Stock Exchange

This study investigates the usage of real earnings management in the listed companies in the Malaysian stock market and whether this usage is informative or opportunistic from the capital market perspective. We used Roychowdhury model (2006) to estimate three measures of REM namely; price discounts, discretionary expenses, and manufacturing cost. By using a sample of the manufacturing industries for the period from 2002 – 2010, we found evidence about the opportunistic use of the REM to affect the accounting earnings. But, regarding the capital market perspective, we found that the investors are unaware of the REM and they are misled by such practices because they rely heavily on the fixed number of earnings. Thus, the findings of the study provide evidence about the managers’ tendency to use REM techniques opportunistically, but the market is unable to evaluate such practices correctly.