Questioning Public Policy's “Maintained Assumption”: The Case of Governance Rules Impacting Regulatory Sanctions Among Capital Market Players in Malaysia

Abstract

Abstract Legal obligations are primarily introduced and enforced on capital market players with the aim of ensuring orderly capital market activities which should (rightfully) lead to capital market stability and hence unhindered economic growth. In the Malaysian context, listed firms being part of the Country's capital market players are mandated to observe and comply with extensive capital market rules introduced and enforced by the Country's capital market regulatory bodies. It includes the need for listed firms to practice sound governance and transparent reporting of financial information. These market disciplining apparatus are essentially economic centric public policies, developed and subsequently imposed on public listed firms premising on the maintained assumption that strong and sound governance structures would result in enhanced market discipline. This research paper reports empirical findings which form part of a larger research project on regulatory sanctions in Malaysia. Examining specific and conventional governance, ownership and firm specific elements comparatively between sanctioned and matched non-sanctioned firms between 2001 and 2008, we document prelude evidence questioning the validity of governance rules’ maintained assumptions that strong and sound governance structures would at least, insulate firms from being sanctioned. The results further signify the entrenched culture of box-ticking among listed firms in Malaysia, whereby the problem practically forms large improvement void which are potentially detrimental to the Country's capital market stability if left unattended.