Remuneration Institutional Investors Conclusions and Limitations

2424 thus it is of no surprise that companies that have a large number of institutional investors would be more inclined to do income smoothing. However, Chung, Firth and Kim β005, found that institutional investors are effective in deterring managers‘ opportunistic earnings management. Accordingly the null hypothesis is as follows: H 4 : Income smoothing does not depend on the existence of institutional investors

2.5 Management Ownership control

Income smoothing activities is said to be significantly associated with management ownership εoses, 1λ87. As a manager‘s percentage of ownership increases, the ownership structure of a firm changes from one which is manager -controlled to one that is managerowner-controlled. Thus, as managerial ownership increases, there is a corresponding increase in the manager‘s discretionary ability to modify the revenue generating process through the use of accounting policy choice and this is hazardous to firm performance Morck et al., 1988 and Chen and Kao, 2005. In contrast, as 2425 managerial ownership increases there is a concurrent increase in the alignment of manager and shareholder interests Jensen and Meckling, 1976. Thus, the null hypothesis is as follows: H 5 : Income smoothing does not depend on management‘s ownership control

2.6 Chinese-controlled companies.

Next we shall look into the impact of having Chinese directors on the income smoothing practice. This is because, there exists a unique institutional characteristic of Malaysian Chinese companies, that is the wide-spread involvement of the owners as the management executives even after companies go public Heng, 1992. CheAhmad and Houghton 2001, and Johnson and Mitton 2003 document a significant relation between ethnicity and audit fees in the Malaysian market. They suggest that Chinese business practices may influence differences in levels of agency conflicts and risks associated with