Abstract
This study investigates the relationship between two governance issues, i.e., ownership and board structure of Malaysian listed firms (between 2010 and 2012) and their performance in terms of profitability, liquidity and gearing. Structural Equation Modeling is applied and the data analysis tool used is Maximum Likelihood Estimation (MLE). The dependent variables used as proxies for financial performance are; profitability, liquidity and gearing, whilst the independent variables are; ownership retention (OR), board size (BS), percentage of executive directors (ED), percentage of independent directors (ID) and percentage of non-independent non-executive directors (NINED). It is conjectured that there is consistency across all components of ownership and board structure in terms of its relationship with the gearing of companies. With the exception of non-independent non-executive directors, all other components of board structure in this study seem to have an impact on the gearing of companies. In that respect, it can be concluded that a company’s ownership structure and board of directors who represent the shareholders have major concerns on the gearing of companies compared to other financial indicators, as the level of gearing of a company has important and long-lasting effects on the profitability and liquidity of companies. This study leads the path for further research on all aspects of a company’s gearing.
Highlights
The corporate governance study covers a wide variety of governance topics, which includes board structure, governance of capital markets, directors’ remuneration and perks, agency cost, etc
Executive directors, independent directors and non-independent non-executive directors are identified as representing board structure
Results indicate that ownership structure and board size have an impact on the profitability and gearing, whilst executive directors and independent directors have an impact only on the gearing of a company
Summary
The corporate governance study covers a wide variety of governance topics, which includes board structure, governance of capital markets, directors’ remuneration and perks, agency cost, etc. Malaysian Code of Corporate Governance (MCCG) was incorporated into the listing requirements, with the intention of having a more structured and impactful listing requirement, for the benefit of all stakeholders. The Malaysian Code of Corporate Governance (MCCG) was updated in 2007 and 2012 as part of the regulatory body’s efforts in conveying the importance of corporate governance for listed companies and to increase transparency and investor confidence. This study intends to explore the relationship between two governance issues, i.e., ownership and board structure of Malaysian listed firms (between 2010 and 2012) and their performance in terms of profitability, liquidity and www.ccsenet.org/ass. The following section gives an overview of the two major areas of this study, i.e., function of ownership retention and board structure on the performance of a company
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