Family ownership heterogeneity and audit committees independence and its implication towards the revised Malaysia code on corporate governance (MCCG, 2007)

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This study examines the effectiveness of audit committee independence when moderated by firms’ family ownership. This is to investigate the implication of revised Malaysia Code on Corporate Governance (2007) that requires majority composition of independence directors in the audit committee. We study 1,206 firm-year observations between fiscal years 2004 to 2009 of firms listed in Bursa Malaysia. The findings suggest that independent directors are more effective in curbing earnings management when there is stronger ownership of family members. Our research offers insights on the important of family institutional structures on corporate governance reforms in Malaysia. Malaysian family firms are mostly traditional firms which have built their reputation and strength in the industry for many generations. The reputation built, improve shareholders confidence and reduce potential agency conflicts