The Relationship Between Corporate Governance Mechanisms and Firm’s Performance

Abstract

The Asian financial crisis in 1997 has gained a public attention on the importance of corporate governance. Several reforms have been undertaken, especially in strengthening the boards of director’s composition to ensure the board of director’s function is delivered efficiently. Thus, the Malaysian Code of Corporate Governance (MCCG) codified the best practices that could enhance the corporate performance. Using the agency theory as a theoretical lens, this study examines the relationship between board independence, CEO duality, board size and directors’ remuneration on firm performance, based on two measurements, namely Return on Assets (ROA) and Tobin’s Q following MCCG 2012. The 100 samples of annual reports were randomly selected from the Bursa Malaysia website for the year end 2013. Results from the multiple regression analysis reveal that CEO duality and directors’ remuneration were found to have a significant relationship with firm performance when measured using Tobin’s Q. None of the independent variables have a significant relationship with firm performance using Return on Assets as the proxy for accounting measure. The result reveals that there is a negatively significant relationship between firm size and firm performance. Findings would assist the committee of MCCG2012 and other authorities to reinforce on the corporate governance compliance and good practice.