Malaysian Code Research Articles

Indoor Environmental Quality for UKM Architecture Studio: An Analysis on Lighting Performance

Lighting can be efficiently used to maximize occupant comfort, and to conserve energy. This paper focuses on lighting in UKM architecture studio space in order to achieve better IEQ. Good design for building requires sufficient daylight for tasks performed within a space. This is achieved by providing enough means to let in diffused light from the sky, but keep out direct light from the sun to prevent heat gain and glare. Lighting is important to the student because high quality lighting improves student moods, behavior, concentration, and therefore their learning. The artificial light is used most of the time in UKM architecture studio to optimize student vision and comfort. The methodology of the lighting analysis is first by using the equipment named LM-8100, and second by a questionnaire in gauging the lighting comfort level from students’ perspective. Lighting measurement is taken for 11-hours in 2 days for UKM year 3 architecture studio. The finding shows that the lighting setting is not within the range of Malaysian Code of Practice on Indoor Air Quality, but the students perceived it as normal and this is do not hinder them to stay longer inside their studio. This situation will affect the student ability to perceive visual stimuli in short term and health in terms of students’ vision in the long run.

What has changed? The development of corporate governance in Malaysia

PurposeThe purpose of this paper is to present a mini review of corporate governance in Malaysia. The paper acts as an introduction to the history of corporate governance in Malaysia, from the starting point until the release of the new Blue Print.Design/methodology/approachThe paper adopts a browsing method that takes into consideration the review of the Malaysian Code of Corporate Governance. It also reviews the new blue print of the code of governance in Malaysia.FindingsAn extensive effort is being implemented to improve the corporate governance mechanisms in Malaysia and although Malaysia is following the UK style in designing the corporate governance code, it secured the 4th position among the world's top countries growing in the direction of attracting investors.Originality/valueThis is a review paper based on the guidelines of corporate governance in Malaysia.

Risk management and disclosure in Malaysian corporations: managerial perceptions

The purpose of this study is to examine the extent to which Malaysian companies had established separate risk management committees (RMCs), factors influencing the establishment of RMCs and the type of risks disclosure that should be provided in corporate annual reports. In departure from the majority of prior studies on risk management and disclosure which examined corporate annual reports, the present study sought views from corporate managers through questionnaire survey on issues related to risk management and disclosure in Malaysia. The findings show that 21 (35.6%) companies had established separate RMCs implying that the revised Malaysian Code on Corporate Governance (2007) have had some positive impact on corporate governance in terms of encouraging companies in establishing separate RMCs. Larger companies were expected to establish separate RMCs suggesting that cost considerations have an influence on whether a company would establish a separate RMC. The item under financial risk, ‘credit’ was rated by the respondents as the most important disclosure.

The influence of cultural values on the board of directors: Lessons from five corporations

The Malaysian Code of Corporate Governance 2000 emphasises the monitoring role of the Board of Directors, especially that of independent directors. It has not however taken into account the cultural values in Malaysia which do not encourage differences of opinion or criticisms and has failed to provide sufficient safeguards for directors to exercise their role effectively. As a result, it is relatively easy for dominant Chairmen or CEOs especially in government-linked companies or CEO dominated companies to control the Board or senior management with very little opposition. This paper will discuss several incidences of financial mismanagement in companies caused by dominant directors with very little opposition from the rest of the board. It will highlight that the law has to take cultural values more seriously in order to equip the Board and especially independent directors with the ability to challenge dominant Board members.

Political connections, corporate governance and audit fees in Malaysia

PurposeThe purpose of this paper is to examine the relationship between political connection, corporate governance and audit fees in Malaysia. Specifically, it is argued that politically connected firms are perceived to be riskier and thus require auditors to undertake greater audit efforts which in turn lead to higher audit fee. Furthermore, it is also hypothesised that the demand for better corporate governance practices requires more audit effort exert from the auditors, and the demand for higher quality work is expected to be stronger for politically connected firms as these firms are being perceived to have higher risks. This is turn results in higher fees paid to the external auditor.Design/methodology/approachThis paper employs panel regression analysis. The panel data set consists of 382 non‐financial firms (1,022 observations) for three years from year 2001 to 2003.FindingsBased on 1,022 firm‐year observations for the period of 2001 to 2003, the results reveal that politically connected firms pay higher audit fees, while firms with better governance demand a higher audit quality, leading to higher audit fees. However, there is no evidence to support that corporate governance demands for a higher quality audit especially for politically connected firms.Originality/valueThis paper contributes to the corporate governance‐audit fees literature by examining a large number of corporate governance variables based on the Malaysian Code on Corporate Governance. In particular, instead of using several individual governance variables such as audit committee, board structure or composition, this study condensed the large number of corporate governance variables into a single index. Furthermore, this study was conducted in Malaysia, which is a unique environment that offers clear identifiable segments based along ethnic line, whereby, politically favoured firms are generally given special privileges by the government.

The effects of corporate governance, bank risks and capital on bank performance in Malaysia (2004-2009)

This study seeks to investigate the effects of corporate governance, risk and capital on the performance of Malaysian banks. This gives incremental insights on the effects of new regulations; revised Malaysian Code on Corporate Governance (MCCG, 2007) and the implications of this code on the performance of Malaysian banks. This is by addressing the level of boards and audit committees independence, risks and the level of risks weighted capital (RWC) on banks performance. In particular, this study aims to investigate whether regulations improves banks performance.

Environmental quality index (EQI) for industrial ventilation and occupational safety and health evaluation in manufacturing plant

PurposeThe purpose of this paper is to define an environmental quality index (EQI) for a clean manufacturing process. The categorized clean and sustainable manufacturing process in a small and medium enterprise, and the indoor air quality (IAQ) parameter and air pollution in manufacturing were monitored and evaluated using the EQI index.Design/methodology/approachTwo main methods of measurements used are subjective measurements and physical measurements. Questionnaires were used to gauge subjects' level of understanding in issues related to IAQ and to determine types of activities, process and material involved in each working section. Physical measurements and testing methods employed were based on widely used and accepted scientific practice, as described in standards. The Malaysian code of practice on IAQ was also used as a reference.FindingsThe EQI in various workstations were calculated and ranged between four and 16 (i.e. four to 16, from good to unhealthy) depending on the nature of activities taking place in those work stations.Research limitations/implicationsIn this paper, the monitoring of pollutants used a scale of one to five to denote the level of pollution by individual pollutants and assumed those pollutants are additive in the mixture of the EQI. The working environment is important to productivity and has a direct impact on human health.Originality/valueThe paper shows how the EQI will have a significant impact on occupational safety and health in the workplace and how an uncondusive work environment will be a potential health hazard and result in less productivity.

Board independence and corporate performance: Evidence from Malaysia

One of the key provisions of the Malaysian Code on Corporate Governance is the requirement for inclusion of outside or independent directors on the board. The recent corporate scandals that have rocked the nation provide evidence of the failure of this provision to prevent these scandals from occurring. Though the Malaysian Code on Corporate Governance has been in place since 2000, it raises the question of the appropriateness of the provision as a bulwark against corporate misdeeds. The code is based on the United Kingdom’s experience as set out in the Cadbury Report. Could a code based on the Anglo-Saxon experience suit the need of this country’s business environment? This research, thus, addresses empirically, the effectiveness of the provision for outside or independent directors as provided for in the Malaysian Code of Corporate Governance on the governance of Malaysian firms. The analysis was performed by monitoring the changes in corporate performance with the inclusion of these outside directors. The sample for this study comprises of firms listed on Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange) for the year ending 2006. Results show that there is no convincing evidence that the provisions as outlined in Malaysian Code of Corporate Governance as regards outside directors have any positive effect on corporate performance. Key words: Independent director, corporate performance, corporate governance, Malaysia.

Financial restatements and corporate governance among Malaysian listed companies

PurposeThis paper seeks to examine the effects of Malaysian Code on Corporate Governance on the nature of financial restatements in Malaysia and whether corporate governance characteristics are associated with financial restatements.Design/methodology/approachData for this paper are obtained from annual reports that had been restated for the period of 2002‐2005 with firm‐years being the unit of observation. A control group comprising non‐restating firms is formed using match‐pair procedures where restated and non‐restated firms are matched by size, industry, exchange board classification, and financial year end. The data are subsequently analyzed using a t‐test, the Pearson correlation and logistic regression.FindingsThe results show that the primary reason for misstating the accounts is to inflate earnings. The nomination committee of the firms that restated is found to be less independent with higher managerial ownership. The logistic regression analysis indicates that the extent of ownership by outside blockholders deters firms from misstating accounts. Surprisingly, audit committee independence is associated with the likelihood of financial misstatement. Financial restatements, nevertheless, are not found to be associated with board independence, managerial ownership, and CEO duality. Finally, the results show that firms with high level of debts are more likely to commit in financial misstatement.Practical implicationsThe research is significant as it provides evidence on the role of corporate governance, especially the independence of the nomination committee and extent of ownership by outside blockholders in Malaysia. It shows that outside blockholders is effective in disciplining managers so that the accounts so prepared are not misleading. The move in 2007 by the Malaysian Government to require companies audit committee to be composed of only independent and non‐executive directors, as well as requiring audit committee members to be financially literate, should be seen as important in ensuring the effectiveness of the audit committee.Originality/valueThis research is considered as the first study which examines the effects of corporate governance variables on the incidents of financial restatements in a developing country. The findings of this paper would be useful for policy makers in evaluating the importance of corporate governance in emerging countries, specifically on the issue of quality financial reporting.

Corporate governance and voluntary disclosure in Malaysia

The purpose of this study is to examine the relationship between corporate governance and voluntary disclosure. The expectation is that with the introduction of the Malaysian Code on Corporate Governance in 2000, companies would be more aware of the need to have good governance and that good governance would lead to enhanced transparency. Regression analysis was performed on data collected from annual reports for years 2001 and 2006. Consistent with expectation, the extent of voluntary disclosure has increased from 2001 to 2006. The increase was statistically significant at the 5% level. However contrary to expectation, none of the corporate governance variables recommended in the Code was statistically significant.

Disclosure Quality on Governance Issues in Annual Reports of Malaysian PLCs

This paper investigates the disclosure quality of governance issues in annual reports of Malaysian PLCs. In recent years, the issue of corporate governance (CG) has received more attention than it would ordinarily have as a result of a series of corporate failures. Corporate collapses like Enron Corporation (US), Barings Empire (UK) and in Malaysia cases such as Perwaja and Pan Electric Inc. are all rooted in the lack of a proper governance system. As a result, the Finance Committee on Corporate Governance was established in 1998 to undertake a review of the legal and regulatory infrastructure, specifically to evaluate its effectiveness in promoting sound CG standards in Malaysia. Following this development, a few guidelines on CG have been released, particularly addressing the principles and best practices such as the Malaysian Code of Corporate Governance (the Code), the Capital Market Master Plan, and the Financial Sector Master Plan. The main purpose of these guidelines is to strengthen CG standards and practices in Malaysia by focusing on the role and responsibilities of various CG participants, mainly the management, board of directors, audit committee (AC), external and internal auditors. Secondary data is used in this study. A disclosure index is established following the Bursa Malaysia Governance Model, the Code’s guidelines and Committee of Sponsoring Organizations of the Treadway Commission (COSO) guidelines. This study also aims to examine factors that possibly affect both the quality and quantity of disclosure. In general, it may be concluded that Malaysian companies have complied with the standards requirements. Only three factors under observation namely leverage, size and type of industry were found to have relationship with the quality of disclosure relates to governance issues.

Corporate Governance Reform and the Value Relevance of Equity Book Value and Earnings in Malaysia

This paper examines the effect of corporate governance reform on the value relevance of equity book value and earnings by employing the Ohlson’s (1995) Valuation Model, and it is based on the methodology developed by Davis‐Friday et al. (2006). The sample consists of Main Board companies listed on Bursa Malaysia from 1999 to 2001 in order to investigate the effect during and after the issuance of the Malaysian Code on Corporate Governance (MCCG) as a measure of corporate governance reform. The findings generally indicate that equity book value and earnings are value relevant in assisting investors to value firms’ equity. Findings of this study, nonetheless, show that the regulatory change experienced by the country did not have an impact on the valuation of equity book value and earnings. This, thus, suggests that most of the Malaysian companies may not have met the intended purpose of MCCG, but merely conformed to the minimum requirement. In summary, the findings of this study provide evidence that the equity book value and earnings reported in the financial statement is value relevant in valuing Malaysian firms’ equity.

“The ‘New’ Malaysian Criminal Procedure: Criminal Procedure (Amendment) Act 2006”

This paper explores the reform process surrounding the recent changes to the Malaysian Code of Criminal Procedure concerning statements made to police officers, discovery, body searches, rights to legal advice and detention. The Criminal Procedure (Amendment) Act 2006 was the first major piece of legislation to reform the criminal process in Malaysia for 20 years and represented an attempt not only to deal with specific problems relating to police practice and the pre-trial process, but also to single out Malaysia as a progressive state within Asia committed to the Rule of Law. The problem which this paper seeks to address, however, is that while many of the reforms appear to be a welcome attempt to protect suspects in police custody from abuse (a startling contrast to the recent legislative measures introduced in the UK as part of the “war on terror”), to better regulate police investigations and to improve the overall quality of justice administered pre-trial, a doubt lingers as to the direction of that reform and of the values guiding the criminal process. It will be argued that, without clear cultural markers, implementation of the new measures is likely to be piecemeal and previous cultural practices will continue to undermine even the best of legislative intentions.

Earnings Quality and Corporate Governance Following the Implementation of Malaysian Code of Corporate Governance

This paper investigates the association between corporate governance mechanisms and earnings quality after the implementation of Anglo-Saxon based corporate governance code in Malaysia. Using 1625 firm-years observations during the period 2003-2007, we test whether corporate governance variables are significant in determining earnings quality. We regress eleven corporate governance mechanisms on earnings quality proxies, which are estimated using modified Jones (1991) and Kasznik (1999) model. We find that firms with (1) larger size of board of directors and (2) larger size of audit committee are significantly associated with higher level of earnings quality. This implies that board of directors and audit committees that are larger in size are more effective in performing their governing roles compared to smaller boards and audit committees. However, we also found that while the monitoring effectiveness of audit committee is consistent throughout the sample, the effectiveness of boards governance is only prevalent in government-linked and state-owned companies. As this study is conducted on a large set of sample over a reasonably adequate time-frame, the results capture a better picture of the association between earnings quality and corporate governance in Malaysia.

Corporate governance and earnings forecasts accuracy

PurposeThis paper aims to extend the research on the Malaysian initial public offering (IPO) management earnings forecasts by examining the impact of corporate governance mechanisms and earnings forecasts accuracy. It seeks to investigate whether effective corporate governance is a credible signal of improving the quality of financial information.Design/methodology/approachA sample of 235 IPO companies that went public during the period 1999‐2006 was used. Absolute forecast error was used to proxy for earnings forecast accuracy and to represent financial disclosure quality.FindingsCompanies with a higher percentage of non‐executive directors in the audit committees and larger audit committee size exhibit greater forecast accuracy. The accuracy of IPO earnings forecast is also positively influenced by the use of brand‐name auditor.Practical implicationsThe results suggest that effective corporate governance is a credible signal of improving the quality of financial information. The role of audit committee as financial monitors as suggested by the agency theory supports this paper.Originality/valueThe results are consistent with the belief that effective corporate governance is associated with higher financial disclosure quality. The results also support the decisions made by Malaysian regulators such as the Securities Commission to enhance the quality of financial disclosure by revising the Malaysian Code on Corporate Governance to encourage public companies to implement good governance practices such as audit committee independence.

Malaysia and Competition Law: EC as Comparator

In advent of the 'New Economy' towards globalization and liberalization, Malaysia has placed much importance on creating a competitive environment for the economy. In line with the concept that competition creates efficiency and allows for the reflection of true prices in the market, Malaysia has initiated substantial competition building measures since the mid-1980's. Some of the steps taken towards deregulation and liberalization included encouragement of foreign investors, privatization of existing and new sectors such as fixed-lined and cellular telecommunications, public utilities and infrastructure; and in promoting high technology trade, especially e-commerce. In addition, Malaysia has also allowed for the increased in foreign equity participation and the diversification of the types and scope of services offered, for example in transportation and Information Technology (I.T.). The implementation of the said law is exercised in a piece meal as stated above. Merger and takeover also adopt competition policy in its code known as Malaysian Code on takeovers and mergers. However, the code does not address measures of control for merger abuses particularly in corporate merger. This aim of this paper is to discuss whether EC may be use as comparator to Malaysia. This paper will base its discussion on background, history legal system, social, culture and relevant institutions of both countries.

The Impact of the Malaysian Code on Corporate Governance: Compliance, Institutional Investors and Stock Performance

In 2001, the Malaysian Code on Corporate Governance (MCCG) became an integral part of the Bursa Malaysia Listing Rules, which requires all listed firms to disclose the extent of compliance with the MCCG. Our panel analysis of 440 firms from 1999 to 2002 finds that corporate governance reform in Malaysia has been successful, with a significant improvement in governance practices. The relationship between ownership by the Employees Provident Fund (EPF) and corporate governance has strengthened during the period subsequent to the reform, in line with the lead role taken by the EPF in establishing the Minority Shareholders Watchdog Group. The implementation of MCCG has had a substantial effect on shareholders' wealth, increasing stock prices by an average of about 4.8%. Although there is no evidence that politically connected firms perform better, political connections do have a significantly negative effect on corporate governance, which is mitigated by institutional ownership.

Audit Committee Practices in Malaysian Large Firms

This study examines the disclosures contained in Audit Committee Reports (ACRs) and the level of compliance of the current practices to the amended Kuala Lumpur Stock Exchange listing requirements after the adoption of various recommendations made by the High-Level of Finance Committee on Corporate Governance and Malaysian Code on Corporate Governance (MCCG) in 1999 and 2000 respectively. All firms that listed on the KLSE's main and second board, and MESDAQ counters were sampled. Consistent with the literature in developed markets, the findings reveal that very few companies provide more than what is expected in the ACRs by the listing requirements. Also companies in finance, technology and IPC counter, and companies in the main board counter have greater initiatives to provide value added (or termed as non-boiler plate) statement to the information users.

Directors' remuneration, firm's performance and corporate governance in Malaysia among distressed companies

PurposeThe purpose of this study is to investigate the extent to which firm's performance, the structure of the board of directors and ownership determine directors' remuneration in Malaysia among distressed firms.Design/methodology/approachThe study uses publicly available data from a sample of 86 distressed firms and matched 86 non‐distressed firms for 2001 financial year.FindingsThe findings for the full sample show that directors' remuneration is not associated with firm's profitability, as measured by ROA. A negative and significant association is observed between directors' remuneration and lagged ROA. With regard to corporate governance, board independence and the extent of non‐executive directors' interests are found to have negative influence on directors' remuneration. In addition, findings also reveal directors' remuneration is positively associated with firm's growth and size. In sub‐sample analyses, a strong negative relation is observed between ROA and directors' remuneration for healthy sub‐sample.Research limitations/implicationsFuture research on this area could examine period after the adoption of the Malaysian Code by the Bursa Malaysia in 2001. Further, interviews with directors and managers about the need to link remuneration and performance could be carried out.Practical implicationsThere is a need for companies to link remuneration with performance, which this paper found to be lacking in practice.Originality/valueThe contribution of this paper is its examination of directors' remuneration among distressed firms. Findings of this paper would be useful to both regulatory bodies and practitioners.

Advertising to children in Malaysia

Outlines Malaysian restrictions about advertising to children under 18 and on the use of children in advertisements: the latter is discouraged unless the products advertised directly relate to children. Introduces the Malaysian Code of Advertising Practices as the basis of the self‐regulation system; there are no specific laws governing advertising in Malaysia. Outlines some of the Code’s main prohibitions, many of which concern children being shown in dangerous situations; others are concerned that advertisements for a product do not imply that owning it is necessary or will make the child superior to other children.