Director Training and Financial Disclosure: Asian Insights

We provide evidence regarding the relationship between director training programs and improved financial reporting. Director Training Programs (DTP) help directors better understand the specific context in which a firm operates, including its operations and environment; awareness of business norms and values; standards of probity and accountability; and their fiduciary duties as an agent of investors. This study explores a recent requirement for director training and its effect on the quality of financial reporting for publicly listed companies in three eastern countries. This study examines the relationship between DTP and the quality of financial reporting of Australian, Malaysian and Pakistani publicly listed companies by using a sample of data from 2011 to 2013. We determined that Australian companies that incur additional DTP expenditures and have a flexible training schedule (Online DTP)improve their financial reporting quality and that a wellestablished DTP positively affects financial reporting quality in Malaysia. In addition, the results indicate that firm size negatively affects financial reporting quality in the Asia Pacific and older companies (firm age) suffer from low-quality financial reporting.


Introduction
performance of a company and its directors, which makes financial reporting a primary indicator of management's control and proficiency. Doh (2003) suggests that individuals can be taught how to engage in effective board leadership and systematic training programs affect organizations' leadership strategies (Barling, Weber, & Kelloway, 1996;Dvir, Eden, Avolio, & Shamir, 2002). Parry and Sinha (2005) investigate the effects of training and report a significant increase in leadership strategies and a significant effect on performance through the enhancement of transformational strategies (Dvir et al., 2002). In addition, leadership training significantly affects self-reported employee variables such as employee commitment (Barling et al., 1996) follower development (Dvir et al., 2002), satisfaction with leadership (Hassan, Fuwad, & Rauf, 2010) extra follower effort (Parry & Sinha, 2005) and certain objective performance measures (Barling et al., 1996). However, the impact of director training programs on the financial reporting quality is not well understood. Recently, the association between leadership characteristics and financial reporting quality has been discussed in developed countries. Emphasis was placed on specific governance mechanisms including insider domination of shareholding (Yeo, Tan, Ho, & Chen, 2002;), board independence (Beekes, Pope, & Young, 2004;Bradbury, Mak, & Tan, 2006;Petra, 2007), director shareholding (Sánchez-Ballesta & García-Meca, 2007) and the reputation of the auditing firm (Agrawal & Chadha, 2005). Recent studies have analyzed board attributes and financial reporting quality in rapidly growing emerging economies that have distinctive features of corporate control, capital allocation and regulations (Bradbury et al., 2006;Dimitropoulos & Asteriou, 2010;Firth et al., 2007).
Countries around the world are characterized by their corporate governance systems and scholars debate the efficiency, superiority and effectiveness of these systems. We use a dataset that includes large Australian, Malaysian and Pakistani firms; these three Anglo-Saxon countries have common characteristics in terms of their basic governance systems (La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1998). Prowse (1992) suggests that judgments are inherently subjective because of sparse evidence regarding the relative performance of different corporate governance systems. Existing studies have generally examined the effects of corporate governance characteristics of firms that operate in only one country on earnings management (Armstrong, Barth, Jagolinzer, & Riedl, 2010;Larcker, Richardson, & Tuna 2007;Yasser & Mamun, 2015). In this study, we seek to fill this gap in the extant literature.
This study seeks to analyze the following question: Do the director training programs of publically listed companies affect the quality of their financial reporting? To address this question, we built a dataset by collecting data from the Australian Stock Exchange, the Kuala Lumpur Stock Exchange and the Pakistan Stock Exchange. We empirically analyzed the effect of director training programs on earnings management by examining a sample of matched industrial companies that are listed on the stock exchanges of the sample countries. Data were collected from annual reports and when necessary, these data were complemented and crosschecked with the corporate websites of the sample companies. First, we provide a review of prior empirical studies, which is followed by our hypotheses, the method, the study results, a discussion, and the conclusion. Mole (2000) distinguishes between training, education and development and proposes that training focuses on the present job, education focuses on a future job, and development focuses on the organization. Although some of the more traditional modes of provision, particularly for formal management programs, seek to enhance skills and knowledge and adopt a training approach, the current trend focuses more on education and development as indicated by the following statement: "Development programs prepare individuals to move in the new directions that organizational change may require" (Mole, 2000, p. 22).

Review of Prior Studies and Hypotheses
Professional development is an important topic that is related to the characteristics of top management because it is related to distinct patterns of decision makers' cognitive processes, attention and final decisions (Wiersema & Bantel, 1992). In addition, Hambrick and Fukutomi (1991)   suggest that executive-specific fixed effects reflect systematic differences in executives' disclosure styles and tax avoidance strategies.
Prior studies propose that executive training can be used to develop needed competencies and help companies' strategic personnel to succeed in their specific organizational contexts (Burke & Hutchins, 2007).
The effectiveness of director training has been studied from three different perspectives: the effects of training on attitudinal outcomes of trainees (Howell & Frost, 1989), the effects of training on subordinates' task performance (Kirkpatrick & Locke, 1996) and the impact of training on financial outcomes (Barling et al., 1996).
Studies regarding the impact of training on skill development have demonstrated that this effect is stronger for technical training than more complex types of managerial training programs and the effects of training are more significant for skills that can be segment-

Research Methodology
The dataset includes a large sample of firms that operate in multiple sectors (manufacturing, services, agriculture, and construction). We describe our sample selection procedure in Table 1

Multivariate Regression Models
In the multivariate analysis, we used the absolute value of the residue of the regression models to mea-sure the quality of the accruals. Dechow and Dichev (2002) and Francis, LaFond, Olsson, and Schipper (2005) used the standard deviation of errors in the estimation of accruals to measure the quality of the accruals; however, we use the absolute value of this residue. Multivariate regression models were used to analyze the relationship between DTP and financial reporting quality as follows:

Dependent, Explanatory and Control Variables
The variables that are used in our equations are described in Table 2

Control Variables
Motivated by prior empirical studies, we include firm size, board independence, financial leverage and firm age as control variables (Owolabi, Obiakor, & Okwu, 2011;Raheman & Nasr, 2007). To control for firm size, we included a variable for the natural logarithm of total assets (FSIZE). Firm age was calculated as the natural logarithm of the number of years since the incorporation of the firm, which helped to control for the or-  (2004) argued that a firm's leverage may lead to increased external control because creditors would monitor its capital structure more intensively to protect their interests. In alignment with Chen and Jaggi (2000), the debt-to-equity ratio (FL) was used to measure firm leverage.

Dependent Variables (Proxies for Financial Reporting Quality)
A solitary universally recognized measure for financial reporting quality has not been developed (Dechow et al. 2010). This study employs three measures that have been used in prior studies and an aggregate measure is included for the following reasons. First, this study focuses on financial reporting quality, which is multi-dimensional.
Therefore, a single proxy may not include all of the facets of financial reporting quality. Second, the use of multiple proxies increases the adequacy of our results. Third, using alternative measures mitigates the possibility that results using one particular proxy capture a factor other than financial reporting quality.
The first measure is performance-adjusted discretionary accruals as proposed by Ashbaugh, LaFond, and Mayhew (2003) (2008) and use the following regression: (2) where, ∆ AR i,t represents the annual change in accounts receivable and ∆ Rev i,t represents the annual change in revenues, scaled by lagged total assets. Discretionary revenues are the residuals from Equation (2) where, TCaccr represents total current accruals, which are measured as the change in non-cash current assets minus the change in current noninterest bearing liabilities, scaled by lagged total assets; OCF represents cash flow from operations, which is measured as the sum of net income, depreciation and amortization, and changes in current liabilities, minus changes in current assets, scaled by lagged total assets; Rev i,t represents the annual change in revenues scaled by lagged total assets; and PPE i,t represents property, plant, and equipment, scaled by lagged total assets.
The residuals from Equation (3)

Regression Results
Tables 5 through 8 report the impact of DTP on the financial reporting quality of firms that operate in Australia, Malaysia and Pakistan.  with financial reporting quality in Malaysia and the trend of using online DTP is positively associated with "AR" in Australia.  In addition, the results indicate that firm size is negatively associated with the financial reporting measure "TCaccr" in Australia, Malaysia and Pakistan. However, Firm age is negatively associated with financial reporting quality in Malaysia. In addition, the results indicate that firm size is negatively associated with the financial reporting measure "AGGRE" in Australia, Malaysia and Pakistan. However, firm age is negatively associated with financial reporting quality in Malaysia.
Surprisingly, firm size has a negative significant impact of on the quality of financial reporting. However, these results align with Yasser and Mamun (2015). Vijayakumar and Tamizhselvan (2010)

Summary and Conclusion
To our knowledge, this study provides the first documented evidence of an association between directors training programs and measures of accounting quality that explicitly recognizes that a firm's investment in accounting and auditing is not independent from one period to the next. Prior studies have provided conflicting results regarding the extent to which audit fees are associated with accounting quality (i.e., whether fees are consistently high or consistently low) and we can reliably identify instances where a conscious investment was made in more (or less) auditing; however, a director's impact on the financial reporting quality was ignored. We argue that the relationship between measures of accounting quality and measures of unexpected audit fees based on a single period are interpreted by relying on one dimension of agency theory. Finally, academics who seek to broaden their experiences by serving on corporate boards may find the information useful in making decisions regarding their personal development.
The results of the analysis demonstrate that firm size and firm age negatively affect the quality of financial reporting. There are several possible reasons for this influence. Because of their market power, larger and older firms are able to charge higher prices and subsequently earn higher profits. In addition, higher profits could result from economies of scale and stronger negotiating power that provides larger firms with more favorable financing conditions. In addition to inflexible organization structures and technology, a change in the strategic logic that is used by firms (it became more important to survive during a global economic crisis than to increase profitability) may explain the weak relationships between firm size and firm age and reporting quality.