9 research outputs found
Influences of corporate governance and corporate strategy on performance of finance companies in Malaysia
Get PDFThis study presents evidence on the influence of corporate governance mechanisms and corporate strategy on performance of finance companies listed on Bursa Malaysia. The sample
includes all the finance companies listed on the main market of Bursa Malaysia from the period 1992 to 1996 (pre MCCG period) and from 2007 to 2011 representing period after the Malaysian Code on Corporate Governance (MCCG, 2000) was issued. The study aims to determine whether
ownership structure, board subcommittees’ attributes and diversification have influence on performance of finance companies in both the period before and after the MCCG was issued.The results indicate a statistically significant relationship between corporate governance and corporate strategy, and firm performance. Firstly, indirect director ownership has significant influence on firm performance in the post MCCG period. This supports agency theory and means
that ownership by directors helps align the interest of inside and outside stakeholders’ thereby reducing expropriation and enhancing intermediary role and firm performance. The presence of institutional ownership is found to be negatively related with firm performance in the pre MCCG period. Their inactive participation in the monitoring activities of the companies can be related to
their holdings of diversified investment portfolio to reduce their risk exposure and protect their investment return.
The presence of high proportion of independent directors on the board enhances firm value when executive board members hold shares in the firm indicating the effectiveness of their monitoring role in aligning inside owners’ interests with minority shareholders. When executive board members own shares in the firm, the presence of independent chair is negatively related with firm performance, which could imply redundancy in monitoring role since there is already
shareholders on the board to monitor the decision making process. Secondly, the results indicate that composition of audit committee (AC) is positive and significant while interlock of directors on AC and nomination committee (NC) is negatively related with performance in the post MCCG period. This supports agency theory and means that having independent directors on AC enhance monitoring role of the AC thereby enhancing performance. The result also means that
interlock of directors on subcommittees can affect their ability to monitor firms effectively. In the pre MCCG period, directors’ expertise and experience is negative and positively related with performance respectively. This means that expertise and experience of the AC members does not enhance performance due to the less complex nature of the activities of the financial institutions in the period before MCCG. Thirdly, composition of risk management committee (RMC) is negatively related with profitability while independent committee chair positively enhances
profitability. This means that having independent directors on the RMC does not add value to the firms due to the complex nature of operations of financial institutions and due to lack of technical knowledge and inside information by independent directors about firms’ risk activities.
In addition, executive experience of directors is positive while executive membership of RMC is negatively related with performance. This means that directors experience positively influence their monitoring of risk while having executive directors on RMC hinders effective monitoring
of the risks in firms.
Fourthly, independent remuneration committee (RC) chair is significant but negatively related with performance meaning that independent RC chair does not enhance firm profitability. Fifthly, directors’ expertise and executive membership of NC are significant but positively and
negatively related with performance respectively. This means that expert directors on NC enhance profitability by improving the process of selecting competent directors to the board while negative relationship means that having executive directors on NC affects director selection which affects board monitoring and firm performance. Sixthly, diversification is negative while formation of separate risk committee is positively related with performance
respectively. This implies that diversification does not necessarily enhance profitability while separating RMC from AC helps enhance firm performance by enhancing the monitoring of risks inherent in the intermediary role of finance firms and their operations. The results also indicate significant difference in corporate governance of finance firms between the period before and after MCCG was issued. The findings contribute to literature and our understanding of the benefits of director ownership,
independent directors on board and its subcommittees, independent board and committee chair, expertise and experience of the directors on subcommittees, diversification and separate RMC on the intermediary role of financial institutions by showing an association between corporate governance mechanisms, corporate strategy and firm performance. Management, board of companies and regulators may use the findings to make appropriate choices about governance mechanisms and strategy that enhance firms’ intermediary role in order to improve performance
Remuneration committee attributes and firm performance in finance industry
No full textThe study examines the influence of remuneration committee attributes on performance of finance companies for the period 2007-2011. Based on the data obtained from 37 finance companies listed under the finance segment of the main market of Bursa Malaysia, the result indicates significant positive relationship between RC attributes and firm performance. In terms of the coefficient of the variables, the result indicates that independent committee chair is significantly negatively related with accounting returns. This is contrary to agency theory and theoretically consistent with stewardship theory which suggests that executive directors are good stewards and in terms of conflict of the interest, the interest of the principal will prevail. This implies that the requirement for RC to be composed of only non-executive directors may not be the appropriate governance arrangement for finance companies. The result indicates a significant improvement in corporate governance in finance companies based on attributes of remuneration committee after the Malaysian Code on Corporate Governance was revised
Ownership structure, independent chair and firm performance
Get PDFThe focus of this study was to examine the effect of ownership structure and the independent board chair as the moderating variable on the performance of companies in the finance industry of the Main Market of Bursa Malaysia. The study used a total of 185 observation data collected from 37 finance companies from the years 2007 to 2011. The results of the study showed that the independent board chair as the moderating variable had a negative relationship with the finance companies' Tobin's Q value. The literature advocates that the independent board chair has an influence on the monitoring of owner managers and in safeguarding minority shareholders' economic interest. On the other hand independent chair control and monitoring of company decisions can be affected by the dominant voice of the CEO, the majority presence of executive directors, the presence of owner manager and leverage
Audit committee attributes and firm performance: evidence from Malaysian finance companies
Get PDFPurpose: The purpose of this paper is to examine the impact of audit committee (AC) attributes on the performance of finance companies in Malaysia in both period before and after the Malaysian Code on Corporate Governance (MCCG) was issued in order to determine which of the AC attributes enhances performance of finance companies in Malaysia. Design/methodology/approach: The population of the study comprises firms listed under finance sector of the main market of Bursa Malaysia. The number of firms listed on the main market of Bursa Malaysia as at the time of data collection (2012) was 822, out of which 37 were finance firms. Since the number of finance companies listed on the main market was only 37, all companies were used as sample for this study. This comprises companies involved in commercial, investment and Islamic banking, insurance, Takaful and other finance-related services. The sample for the period prior to MCCG varies over the period of observation. The number of finance companies in 1992, 1993, 1994, 1995 and 1996 was 36, 40, 44, 47 and 54, respectively. The sample comprises companies in commercial banking, investment banking, Islamic banking, insurance, Takaful and other finance-related services. The sample comprises firms listed on the main board of Kuala Lumpur stock exchange as it was called before the name was changed to Bursa Malaysia. The companies listed under the Ace market are not included due to their small number and because they are subject to different listing requirements. The list of the finance companies for the period 2007-2011 is obtained from the web site of Bursa Malaysia while for the period 1992-1996, the list is obtained from Bursa Malaysia knowledge centre. The observation period for the study covers financial period from 2007 to 2011 which represents post MCCG period while period from 1992 to 1996 represents the period before MCCG. Findings: The findings suggests a significant positive relationship between independent AC members and profitability while dual membership of directors on audit and nomination committee is significant and negatively related with profitability. The result supports agency theory which suggests that independent directors provide effective monitoring of the management thereby enhancing profitability and reducing possibility for opportunistic behavior by the management and ultimately enhancing performance. In addition, the result indicates that there was significant improvement in corporate governance in finance companies after the MCCG was issued compared to the period before it was issued. Research limitations/implications: The study focussed only on finance companies listed on Bursa Malaysia. The attributes examined include independence, expertise, experience, executive membership and interlock of directors, future studies could examine other attributes such as internal process of the committee and personal characteristics of the directors. Furthermore, the study used secondary data future studies could use primary data or a combination of primary and secondary data. The study only examined the period before MCCG and after the code was issued, future study could examine the impact of the first and second revision and compare it with period after the first and second revision. Practical implications: The findings contribute to the literature and the understanding of the influence of AC attributes such as independence and experience of the directors on the committee by showing an association between director independence, expertise, experience and improved performance. Management and board of companies may use the findings to make appropriate choices about AC attributes and governance mechanisms to improve performance particularly with regards to independence, expertise, experience and interlock of the directors. Social implications: The study has provided policy makers with a better understanding of the various features a AC should have which could be incorporated in future policy formulation in order to safeguard investments of shareholders, protect the interest of various stakeholders and enhance the flow of capital and foreign direct investment into finance companies and the economy in general. Comparison of the result between the pre MCCG and post MCCG period shows an improvement in corporate governance in finance companies after the MCCG was issued. This implies that the initial issue of MCCG impacted positively on the governance of the finance companies. Originality/value: To best of the authors knowledge the study is the first to examine the attributes of AC in finance sector as a whole and to examine the impact in the period before and after the MCCG was issued
Corporate strategy and firm performance in finance industry: the moderating role risk management committee
Get PDFAlthough there are a lot of studies on corporate strategy and performance, very little research has been carried
out on particular industry in a developing country such as Malaysia. Moreover, the studies examined direct impact of strategy on firm performance. Using a sample of thirty seven listed finance firms in Malaysia, we test the moderating effect of separate risk management committee (RMC) on the relationship between corporate strategy and firm performance. Based on agency theory, the study hypothesized that separate RMC moderates the relationship
between corporate strategy and firm performance. The result indicates that the presence of a RMC significantly moderate the relationship between non-traditional strategy and firm performance in a positive direction. Our result provide empirical support for agency theory which suggests that presence of subcommittee of the board of directors helps to facilitate the effective monitoring of management thereby
reducing the risk taking activities of managers which will enhance firm performance
Impact of the Revised Malaysian Code on Corporate Governance on Audit Committee Attributes and Firm Performance
Get PDFAbstract. Using a sample of 37 finance companies listed under the finance segment of Bursa Malaysia, we examined the impact of the revision to Malaysian code on corporate governance on audit committee attributes and firm performance. Our result suggests that audit committee attributes significantly improved after the Code was revised. In addition, the coefficient for audit committee and risk committee interlock has a significant negative relationship with Tobin’s Q in the period before the revision to the Code and before the global financial crisis. The negative direction of the result is contrary to agency theory which suggests that separating directors on subcommittees will create information asymmetry between the directors and lead to poor coordination in the decisions of the committees thereby negatively affecting firm performance.Keywords. Corporate governance, Audit committee, Independent directors, Expert directors, performance, Executive Membership, Directors Interlock, Malaysian Code on Corporate Governance.JEL. G21, O16, O17
Nomination Commitee Attributes and Firm Performance: Evidence from Finance Companies in Malaysia
Get PDFAbstract. The paper examines the impact of nomination committee attributes on the performance of finance companies in Malaysia. Our panel data is composed of annual data for finance companies listed on the main market of Bursa Malaysia over the period 2004 to 2011. The result indicates that finance expertise of directors’ on nomination committee influences accounting returns positively while membership of executive on nomination committee affects accounting returns negatively. This indicates that the requirement of Bank Negara that nomination committee should be composed of non-executive directors is appropriate and suggests that the regulators should recommend companies to include directors with finance expertise in the nomination committee in future policy formulation.Keywords. Nomination committee, independent directors, finance companies, firm performance.JEL. E62, H54, O40
Impact of Corporate Governance on Diversification in Finance Companies: Evidence from Malaysia
No full textAbstract. The board of directors performs a very important role in formulating and monitoring the strategy of a company. Recent development in technology and the change in business environment as well as change in the nature of demand by customers has necessitated the change in the products and services offered by finance companies. Based on data from finance companies listed on Bursa Malaysia over the period 2007 to 2011 this paper examined the impact of board attributes and ownership structure on the corporate strategy of finance companies in Malaysia. The result indicates that expertise of directors and past performance is significant and negatively related with diversification. The study contributes to the literature on corporate governance of finance companies in relation to their diversification strategy and has highlighted the corporate governance mechanisms and regulatory measures appropriate for the sector in order to enhance monitoring so as to achieve sustainable economic development.Keywords. Board attributes, ownership structure, diversification strategy, finance companies.JEL. E62, H54, O40
Ownership Structure, independent directors and firm performance
Get PDFAbstract. The paper examined the moderating role of independent directors in the relationship between ownership structure and firm performance. Using a sample of 37 finance companies listed on the main market of Bursa Malaysia from 2007 to 2011, the result indicates a significant positive moderating effect of independent directors in the relationship between director ownership and ROA but a negative relationship based on Tobin’s Q. The result means that in a company where directors have controlling shares, having independent directors on the board will enhance performance since there will be alignment of interest of board and shareholders. On the other hand, the independent directors influence firm performance negatively in firms with majority ownership by directors since the directors who are the majority shareholders will promote their interest over the interest of the shareholders. The study has provided evidence on the moderating role of independent directors in the relationship between ownership structure and firm performance. This suggests that independent directors influence the strength and direction of the relationship between ownership structure and firm performance.Keywords. Ownership structure, board of directors, independent directors, firm performance, moderating variable.JEL. E62, H54, O40
