Malaysian Code Of Corporate Governance Research Articles

Board independence, women directors and firm performance in Malaysian small-cap firms

This study examined how board independence and female directors (i.e., women in leadership) affected the performance of Malaysian small-cap firms. Small-cap firms trading on the Bursa Malaysia ACE (Access, Certainty Efficiency) market were the subject of this study due to the less strict listing standards imposed on them than large-listed firms. The 2012-2014 annual reports of firms listed on the ACE market were downloaded through the Bursa Malaysia website and the required data was hand-collected. The hypotheses were tested using quantile regression (QR). The data reveal that board independence and firm performance are unrelated unless company performance is in the 0.10 quantile. Board independence has a negative impact on business performance at the 0.10 quantile. Similarly, the connection between women directors and business success was negative in the lower quintiles particularly in the 0.10 and 0.30 quantiles. Nevertheless, in other quantiles, board independence and the presence of female directors on firm performance were not associated. The significance of the study lies in the possibility that small firms might find it excessively expensive to comply with the Malaysian Code of Corporate Governance (MCCG). This study examines the hitherto ignored roles of board independence and women directors in small-cap enterprises on firm performance.

CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE: A CASE STUDY IN THE PHARMACEUTICAL SECTOR IN MALAYSIA

The introduction of the Malaysian Code of Corporate Governance has been progressively updated since its inception in the year 2000 and the latest update in the year 2021, proves that the government of Malaysia has been serious in regulating to ensure that the companies in Malaysia have been compliant with good corporate governance practices. Observing that it is an evergreen issue and to have more updated research, this study evaluates factors that could influence the effectiveness of corporate governance of five pharmaceutical companies listed in Malaysia and its relationship with the financial performance for the period of 2017 - 2021. The methodologies that have been employed for this study are descriptive statistics, non-parametric correlations, scatter plots and regression linear. The findings reveal that variables of board size, board independence, and disclosure of sustainability reports have correlations with the financial performance measured by the return on assets. However, the disclosure of sustainability reports is the only variable that has a significant correlation with ROA whereas board size and board independence do not possess similar relationships. For a better representation of the results’ precision and robust findings, it is recommended to have a longer study period than five years and a larger sample size by extending it to other sectors.

ESG Disclosure and Firm Performance: Evidence after the Revision of Malaysian Code of Corporate Governance

ESG Disclosure and Firm Performance: Evidence after the Revision of Malaysian Code of Corporate Governance

ESG Strategy Through the Integrated Business Model in Congruence with Circular Economy: Does Independent Board Members Matter?

The purpose of this study is to examine the impact of the integrated Business Model disclosures on the financial performance of the top 30 Malaysian PLCs, moderated by a 50% presence of Independent Board of Directors as proposed by the Malaysian Code of Corporate Governance 2017 (MCCG 2017). The paper’s design will adhere to the purposive sampling methodology, utilizing descriptive statistics, multiple regression analysis, and quantitative content analysis derived from the International Integrated Reporting Council (IIRC)’s Integrated Report, along with previous studies. This approach aims to analyze the annual reports and integrated reports, aiming to explore the Integrated Business Model disclosures within the top 30 Malaysian PLCs. The originality of this paper lies in the design of the new Independent Board of Directors Scoring Index, which aims to identify the best disclosures among the top 30 Malaysian PLCs. This scoring index could prove beneficial to both academicians and practitioners, extending its utility beyond the Top 30 PLCs. The study serves as a systematic review of recent research developments in Integrated Business Model disclosures within the Integrated Report and the Annual Reports of the top 30 Malaysian PLCs.
 Keywords: ESG, Circular Economy, Governance, Integrated Report, Business Model, Independent Board of Directors

Board Diversity in Financial Distress Companies in Malaysia

The declining financial performance is often associated with the weak function of the board’s role in the companies. The number of publicly listed companies categorised as Practice Note (PN17) by Bursa Malaysia shows an increase due to financial distress. This study examines the effectiveness of board diversity in financially distressed companies categorised as PN17 by Bursa Malaysia using content analysis of annual reports for five years as secondary data. The characteristics of board diversity include board professionalism and a politically connected board. In contrast, the proxy of financial distress will be measured using Altman Z Score for multiple regressions in evaluating financial performance ratios. Implementing the Malaysian Code of Corporate Governance (MCCG) in 2021 also assessed the effectiveness of board diversity and its interaction with financial distress. The findings from this study are expected to provide evidence that board diversity may have a significant relationship with financially distressed companies. Overall, this study may assist investors, practitioners, and external regulators in monitoring the company by assessing the effectiveness of board diversity from being classified as a financially distressed company.

Integrated Business Model – Technology (IBM-T) reporting trends: Pre and Post Malaysian Code of Corporate Governance (MCCG) 2017

Purpose – This research examines the effects of the five primary factors that determine the top 100 Malaysian Public Listed Companies (PLCs) adoption of the Integrated Business Model - Technology (IBM-T), influenced by the presence of the Women on the Board of Directors, Independent Board members, and the Integrated Reporting 8 Content Elements initiatives.Design/methodology/approach – In order to explore the reporting of the IBM-T, the study have used the selective sampling method, means and standard deviation, document analysis, regularity of voluntary disclosure trend analysis, and the Paired-Sample T-Test derived from the MCCG 2012 and the MCCG 2017, as well as past research of the examination of the annual reports and integrated reports.Originality/value – In this paper, new research advancements in the areas of integrated reporting, business models, MCCG 2012, and MCCG 2017 are systematically reviewed. Other PLCs than Malaysian PLCs might use the ranking indices for the Integrated Business Model - Technology, Women Board of Directors, Independent Board of Directors, and the Integrated Reporting 8-Content Elements.

Audit committee characteristics and the moderating effect of Malaysian code of corporate governance on IPO liquidity

PurposeThis study aims to investigate the link between audit committee characteristics and the liquidity of initial public offerings (IPOs) in Malaysia, which is an emerging economy in Southeast Asia. Another purpose of this study is to examine the moderating effect of the revised Malaysian code of corporate governance (MCCG) on the link between audit committee characteristics and IPO liquidity.Design/methodology/approachThe final sample consists of 304 Malaysian IPOs listed in 2002–2017. This study uses ordinary least squares regression method to analyse the data. To confirm this study’s findings, a hierarchical or four-stage regression analysis is used to compare the t-values of the main and moderate regression models.FindingsThe findings show that audit committee characteristics (size and director independence) have a positive and significant relationship with IPO liquidity. Also, the revised MCCG positively moderates the relationship between audit committee characteristics and IPO liquidity.Research limitations/implicationsThis study’s findings indicate that companies with higher audit committee independence have a more effective monitoring mechanism that mitigates information asymmetry, thus reducing adverse selection issues during share trading.Practical implicationsPolicymakers could use the results of this study in developing policies for IPO liquidity improvements. Additionally, the findings are useful for traders and investors in their investment decision-making. For companies, the findings highlight the crucial role of the audit committee as part of the control system that monitors corporate governance.Originality/valueTo the authors’ knowledge, this work is a pioneering study in the context of a developing country, specifically Malaysia that investigates the impact of audit committee characteristics on IPO liquidity. Previously, the link between corporate governance and IPO liquidity had not been investigated in Malaysia. This study also contributes to the IPO literature by providing empirical evidence regarding the moderating effect of the revised MCCG on the relationship between audit committee characteristics and IPO liquidity.

Integrated reporting disclosure in Malaysia: regulations and practice

PurposeIntegrated reporting (IR) is a new trend in corporate reporting that has spread rapidly in recent years for disclosing financial and non-financial information. This study aims to assess the status of the current regulations and the trends in IR disclosure practice in an emerging market, Malaysia, by providing a comparative analysis of the IR disclosure level (IRDL) and IR disclosure quality (IRDQ).Design/methodology/approachThe current study has developed a comprehensive IR disclosure index based on the international integrated reporting framework (IIRF), which comprises 100 items divided into four categories (background, assurance and reliability, content and form). The data were collected from annual reports of companies listed on the Bursa Malaysia over the three years 2017 to 2019, based on 267 observations. Content analysis technique was used to evaluate and measure IRDL and IRDQ. Descriptive analysis was performed to provide the background statistics of the variables examined.FindingsIR regulations are at an early stage, and IR adoption is still voluntary in the Malaysian market. Only 267 Malaysian company-year observations during the years 2017–2019 have adopted IR techniques. However, descriptive analysis results showed that Malaysian companies have moved towards the preparation of IR consistent with the IIRF. The findings indicate a significant increase in both IRDL and IRDQ over this period, after the recent recommendation by the Malaysian code of corporate governance (2017) on adopting IR. Further, the results show statistically significant differences in the mean of IRDL and IRDQ between large and small companies.Practical implicationsThese results are important for regulators and policymakers in articulating new IR legislation in an emerging market and for corporate entities and investors in shaping their understanding of IR disclosure practice in the Malaysian institutional context.Originality/valueTo the best of the researchers’ knowledge, the study is among the first to address the IR regulation status and practice in Malaysian companies. It also established a comprehensive index for measuring IRDL and IRDQ based on the IIRF. The results add to the meagre descriptive literature on IR practice by providing comprehensive insights into IR practice from the perspective of an emerging country.

Gender and Ethnic Diversity, and Economic Value Added: Evidence from Government-Linked Companies

Board diversity was further emphasized in the revised Malaysian Code of Corporate Governance (MCCG) 2017, as this can allow for more board effectiveness in constructive debates and better decisions. With this recommended deliverable, the code believes that companies should perform and will be more equipped to face the ever-changing business environment and challenges. This study examines the influence of boardroom diversity on corporate performance using Government-Linked Companies (GLCs) in Malaysia as units of analysis. The study used secondary data of publicly listed GLCs in Malaysia for seven years (2012 to 2018). We used gender and ethnicity to proxy for boardroom diversity while economic value added (EVA) represents the company’s performance. We also used panel data multiple regression to analyze the data. After controlling for firm size and firm age, the empirical results revealed that board ethnicity is negatively and significantly related to firms’ economic performance. Board gender, however, provides insignificant results. We also find the firm size to be significant and positively related to EVA. This preliminary result on board composition requires further research on how Malaysian GLCs can address the MCCG’s recommended governance compliance, particularly on the monitoring roles of the board on firm performance.

The Impact of Audit Committee on Earnings Management: The Relevance of Malaysian Code of Corporate Governance 2007

The Impact of Audit Committee on Earnings Management: The Relevance of Malaysian Code of Corporate Governance 2007

Synergistic Integrated Business Model-Sustainability-Technology of Top Malaysian Oil and Gas PLCs: The Moderating Role of United Nations SDG 5

Purpose – This study investigates the impact of the three main determinants of strengthening the sustainability practices of the oil and gas public listed companies of Bursa Malaysia (PLCs) through the Business Model, Sustainability and Technology synergistically compared between pre and post Malaysian Code of Corporate Governance 2017 (MCCG 2017).Design/methodology/approach – The study has followed the purposive sampling method followed by descriptive statistics, regression analysis and content analysis derived from the Malaysian Code of Corporate Governance 2012 (MCCG 2012) and the MCCG 2017 together with previous studies of the analysis of the annual reports and integrated reports in order to explore the reporting of the business model, sustainability and technology as a synergy.

Determinants of Intelligent Energy Implementation Towards Firm Performance: A Conceptual Framework Moderated by Board Gender Diversity and Board Sustainability Committee

This study examines the impact of Intelligent Energy assessed by seven criteria to be followed by Malaysia’s listed companies (PLCs), regulated by Bursa Malaysia which are regulated by the Malaysian Corporate Governance Code 2017 (MCCG 2017)—30 percent Women Boards of Directors as well as by the existence of the Board Sustainability Committee which have not been endorsed by the MCCG 2017. In order to explore the reporting of the seven criteria of intelligent energy amongst Malaysian oil and gas public listed companies, in terms of gender-based and sustainability-based, it follows the methodology of descriptive statistics, regression analysis and content analysis derived from previous studies and the analysis of annual reports and integrated reports. This research provides a thorough analysis of present study breakthroughs in the worldwide oil and gas industry’s Integrated Operations. The 30 percent moderation factor Female Board members, as per the Malaysian Code of Corporate Governance 2017 (MCCG, 2017), would be assessed to see whether having an increased representation of women would encourage the implementation of the seven criteria of Intelligent Energy, as well as the moderation factor of the Board Sustainability Committee, which has not yet been made recommended practice by MCCG 2017, would be a driving force towards intelligent energy within the Malaysian oil and gas industry. Other than the Malaysian oil and gas sector, the Intelligent Energy scoring index might be used to other oil and gas PLCs in the ASEAN area, such as Vietnam and Myanmar, which have growing oil and gas resources.

A Preliminary Study Of Academicians’ Perception Towards Women PN Boards In Malaysian Public Listed Companies

Gender diversity in the corporate board is still an issue for certain countries including Malaysia. The Malaysian Code of Corporate Governance (MCCG) 2017 anticipates 30% of women to be on the corporate board. However, recently the number of women on board reported is still lower. This study aims to examine the perception of academician towards women on board (WOB). The survey questionnaires were sent among academicians. The result indicates that the academicians believe that the appointment of women on boards will improve and enhance the companies’ performance. There are equal opportunities for men and women to be in management positions. The finding of this study will assist the policymakers and companies especially in formulating women policy to support the national agenda.

The Likelihood of Fraudulent Financial Reporting: The New Implementation of Malaysian Code of Corporate Governance (MCCG) 2017

On 26 April 2017 Securities Commission Malaysia has released new Malaysian Code of Corporate Governance (MCCG 2017) replacing MCCG 2012 with several changes and recommendations to enhance corporate’s accountability, transparency and sustainability. Therefore, the objective of this study is to compare the degree of compliance of this new MCCG 2017 among healthy companies and likelihood of fraudulent financial reporting companies using PN17 companies as a proxy. This study used content analysis of MCCG 2017 and disclosures provided in the annual report of the companies and analyzed it using descriptive statistics. We find that the degree of compliance even among healthy companies in Malaysia in terms of board diversity and board remuneration is still insufficient, and some of the companies are still reluctant to comply. This study provides initial evidence on the effect of new amendment of MCCG 2017 on the likelihood of fraudulent financial reporting in Malaysia.

CORPORATE GOVERNANCE DISCLOSURES AND FAMILY FIRMS’ PERFORMANCE: THE MODERATING ROLE OF CEO CHOICE

Mandatory imposition of Malaysian Code of Corporate Governance (MCCG) since 31st December 2012 seems to be associated with serious endeavours done by the regulators and policy makers to enhance the stakeholder’s value for public listed companies in Bursa Malaysia. Family-controlled firms for the financial year of 2010 and 2011 were consecutively rated accordingly using the MCCG index scores issued by Minority Shareholders Watchdog Group ‘MSWG’. The study reveals that CEO choice has moderating effects towards the relationship between disclosures of board of directors’ structure and family-controlled firms’ performance. These findings indicate that family firms’ performance is found to be insignificantly related with CEO choice based on direct regression analysis. However, indirect effect has become significantly and positively related to firm’s performance due to disclosures of MCCG interaction (i.e. board of directors’ structure element) with CEO choice.Hence, significant relationships can be considered in the context of this specific governance element’s impact on family firms’ performance so that the high value creation can be given to investors by the inside CEO.

The impact of Board Size on the Performance of Shariah-Compliant Companies in Malaysia

The objective of this study is to examine the relationship between the board size and firm performance of Shariah-Compliant companies in Malaysia. The characteristics of the board of Shariah-compliant companies in Consumer Products counter of Bursa Malaysia are being examined against the firm’s performance using data from 77 companies from year 2014 to 2016. Based on the result of regression, board size has a strong positive correlation with the performance of the firms. This study suggests that Shariah-Compliant Companies need to strengthen the Shariah governance to produce products that Muslim consumer use in their daily lives. The appointment of director with Shariah background must be highly encouraged if not mandatory to companies involved in producing food, drinks, pharmaceutical and cosmetics in order for the companies to tap their expertise in enhancing halal governance. The findings of the study would be very useful to the regulators to improve the Malaysian Code of Corporate Governance. Furthermore, the findings of the study also help to fill the gap on scarce of literatures that study the relationship between the corporate governance practices and performance.

Board ethical commitment and corporate performance: Malaysian evidence

PurposeThe purpose of this study is to examine the relationship between board ethical commitment and the performance of the company. When directors embed ethics in discharging their duty, it will prohibit frauds, unnecessary actions and decisions that are detrimental to the company.Design/methodology/approachThis study collected data for two years i.e. 2013 and 2014 from the annual report of the biggest 500 companies by market capitalisation as of 31 December 2013 listed under Bursa Malaysia stock exchange. Board ethical commitment is measured based on the Malaysian Code of Corporate Governance (MCCG) and various international best practices while corporate performance is measured based on return on equity, return on assets, net profit margin, market to book value and TobinQ.FindingsThis study found that ethical commitment by the board has a significant positive relationship with corporate performance. The findings are robust to the alternative performance measurements and lagged one-year corporate performance.Research limitations/implicationsThis paper enhances the theoretical understanding of the contribution of the board of ethical commitment to the sustainable performance of the company. However, this study suffered from a limited data collection period of two years only from the annual report of the company.Practical implicationsThis study provides an indicator that the directors need to provide a good ethical leadership example to the employees and committed to built a good ethical work culture in the organisation via establishment of code of ethics. In addition, this code needs to be promoted, enforced and embedded in the operations of the organisation.Originality/valueThis study is original as it not only examines board ethical commitment from MCCG 2012 but also international best practices from various countries such as UK, USA and Europe. It also contributed to the literature and theoretical understanding of the importance of board ethical commitment specifically in developing countries like Malaysia that scarce in the literature.

An Analysis of Internal Audit Investment Among Top Malaysian Listed Companies

The importance of internal audit function in improving the company’s internal control risk management and corporate governance has been emphasized in the Malaysian Code of Corporate Governance (MCCG) and Bursa Malaysia Listing Requirements. Based on the Listing Requirements, Malaysian listed companies are required to establish the internal audit function, which is independent and this function must be supervised by the audit committee. Although the importance of internal audit function has been highlighted in various code of corporate governance, little is known about the investment made by the company in internal audit activity. This study capitalizes the publicly available data on internal audit cost and the type of internal function provider in Malaysia setting. The primary purpose of this study is to describe internal audit practices, especially on the internal audit budget in Malaysia for the year 2017 for top 300 companies. Based on the descriptive analysis, it is found that the internal audit fee is relatively lower than the cost of external audit and most of the companies’ internal audit function was carried out by in house teams. Also, the benefit from economies of scale is less pronounced in internal audit as compared to external audit services. Some further analyses were also conducted, and the article is ended recommendations for future research to be undertaken in investigating the internal importance audit in Malaysia.

The influence of a board’s ethical commitment on corporate governance in enhancing a company’s corporate performance

Purpose The purpose of this paper is to examine the relationship between corporate governance and company performance and how a board’s ethical commitment can influence this relationship. Prior studies documented mixed evidence on the corporate governance and corporate performance relationship, which can be due to the influence of a board’s ethical commitment and will shape the corporate governance mechanism in the company and, in turn, influence performance. Design/methodology/approach This study collected data for two years, i.e. 2013 and 2014, from the biggest 500 Malaysian companies listed in the stock exchange. Corporate governance is measured based on the requirements of the Malaysian Code of Corporate Governance (MCCG), while a board’s ethical commitment is measured based on the MCCG and various international best practices. Corporate performance is measured based on return on equity, return on assets, net profit margin, market-to-book value and TobinQ. Findings A board’s ethical commitment was found to be significant in increasing the strength of the relationship between corporate governance and corporate performance. The findings are robust to the alternative performance measurements and lagged one-year corporate performance. Research limitations/implications This paper provides further evidence on the importance of ethical practices to improve corporate environment and, hence, sustain a company’s performance. This study, however, was conducted on only large companies with a limited data collection period. Practical implications This study provides an indicator that the policymaker and regulatory authorities need to double their efforts in promoting and encouraging a board of directors to take a bold step in improving its ethical culture. Shareholders and investors need to use their power and rights to demand the company to improve their governance and ethical practices. Originality/value This study is original, as it measures a board’s ethical commitment from various sources of local and international best practices such as Malaysia, Australia, Canada, Norway, South Korea, Singapore, Sweden, Turkey, the UK and the USA. It also contributes to the literature and theoretical understanding of the interaction between a board’s ethical commitment and corporate governance on corporate performance, particularly in developing countries like Malaysia, which is scarce in the literature.

Board of Directors and Environmental Reporting: Evidence From Plantation Industry

The purpose of this study is to examine the extent of environmental reporting by listed firms in the plantation industry in Malaysia. The relationship between board characteristics and the extent of environmental reporting by listed firms in Malaysia plantation industry is examined for the first three years after the issuance of the new revised Malaysian Code of Corporate Governance in 2012 (MCCG 2012). Three board characteristics have been used to explain the level of environmental reporting by Malaysia’s plantation industry firms. The correlation analysis is employed to investigate the relationship between the board characteristics and environmental reporting. This study employs a content analysis method by reviewing 110 annual reports consisting of 37 firms listed in Bursa Malaysia for three years (2013-2015). The result reports that most of the board characteristics are not significantly related to environmental reporting by the firms. Out of six measurements, only the environmental related expenses have a positive relationship with environmental reporting. The results from this study may provide knowledge and empirical understanding concerning the environmental reporting practices by the plantation industry. The policy makers and regulatory bodies such as Bursa Malaysia and Securities Commission may consider formulating guidelines for reporting environmental information to encourage voluntary compliance.