Laila Binti Musa¹, Radziahbinti Abdul Latiff²

Abstract: Earnings is one of the evaluation input to investors in their decision making which will affect the return and the wealth of the firms. This certainly illustrates that earnings quality is very important for investors to measure the performance of the firms. Basically, earnings quality can be determined by discretionary factors and innate factors. Innate factors are important determinants of earnings quality of the firm. Most previous studies have not emphasized the potential importance of innate factors individually towards earnings quality. Therefore, this study aims to examine the influence of innate factors as determinant factors of earnings quality in Malaysia’s different economic circumstances, that is before and after the 2008 global financial crisis. The data collection was made through 2717 firm years observed data consisting of 728 listed companies in Bursa Malaysia from the year 2006 until year 2010. Data collected were analyzed using panel data regression techniques in determining the influence of innate factors towards earnings quality. Measurement of earnings quality is based on the accrual quality. The results showed that a number of innate factors shown a different influence of earnings quality in different economic circumstances, that is before and after the 2008 global financial crisis. The firm size and investment opportunities factors shown their consistently in influencing earnings quality before and after the financial crisis. Finally the findings suggested that innate factors are better in explaining earnings quality before financial crisis beyond the period after 2008 global financial crisis. Overall, this study could give a significant contribution to the literature that innate factors have their own importance as determinant factors of earnings quality in Malaysia under different economic circumstances — before and after global financial crisis.

Key words: earnings quality; innate factors; global financial crisis