Malaysian Firms Research Articles

Effect of Gender Diversity on the Association between Corporate Sustainability Practices and Financial Performance of Firms

Purpose: The objective of this research is to examine the effect of corporate sustainability practices (CSP) on financial performance (FP) as well as the moderating effect of gender diversity (GENDIV) in the board on the relationship between CSP and FP of firms in Malaysia.
 Methods: The sample of the study is 312 firm-year observations from 2015 to 2017 of 104 firms listed in Bursa Malaysia. The theoretical framework of the study is underpinned by the Stakeholder theory and the Agency theory. To test the hypotheses, with the help of STATA software, the panel corrected standard errors (PCSE) estimator model and the hierarchical moderated multiple regression model have been used.
 Results: The findings of the study reveal that CSP significantly and positively affects the FP of firms. The empirical results also show that gender diversity in boards significantly moderates the relationship between CSP and FP of Firms in Malaysia.
 Implications: Based on the empirical findings, the study recommends that the policymakers and regulatory bodies should follow up the mandatory corporate sustainability practices of the firms as well as revise the codes of corporate governance regarding gender diversity of the boards to ensure their long-term sustainability as well as to reduce the risk of financial distress, or bankruptcies in the future.

Types of politically connected firms and analysts' earnings forecast

PurposeThis study examined the effect of different types of politically connected (PCON) Malaysian firms on analysts' forecast accuracy and dispersion.Design/methodology/approachThe study identified different types of PCON firms according to Wong and Hooy's (2018) classification, which divided political connections into government-linked companies (GLCs), boards of directors, business owners and family members of government leaders. The sample covered the period 2007–2016, for which earnings forecast data were obtained from the Institutional Brokers' Estimate System (IBES) database and financial data were extracted from Thomson Reuters Fundamentals. We deleted any market consensus estimates made by less than three analysts and/or firms with less than three years of analyst forecast information to control for the impact of individual analysts' personal attributes.FindingsThe study found that PCON firms were associated with lower analyst forecast accuracy and higher forecast dispersion. The effect was more salient in GLCs than in other PCON firms, either through families, business ties or boards of directors. Further analyses showed that PCON firms—in particular GLCs—were associated with more aggressive reporting of earnings and poorer quality of accruals, hence providing inadequate information for analysts to produce accurate and less dispersed earnings forecasts. The results were robust even after addressing endogeneity issues.Research limitations/implicationsThis study found new evidence of the impact of different types of PCON firms in exacerbating information asymmetry, which was not addressed in prior studies.Practical implicationsThis study has a significant practical implication for investors that they should be mindful of high information asymmetry in politically connected firms, particularly government-linked companies.Originality/valueThis is the first study to provide evidence of the impact of different types of PCON firms on analysts' earnings forecasts.

Audit committee chair overlap, chair expertise, and internal auditing practices: Evidence from Malaysia

In this study, we extend the scarce literature on audit committee (AC) leadership by examining the internal auditing outcomes of AC chair overlap as measured by multiple committees of the same board the AC chair serves on and the financial expertise of the AC chair. Theoretical tension exists (busyness or overcommitment versus knowledge spillover theory) about whether overlapping membership of the AC chair can enhance or weaken monitoring effectiveness. We leverage the 2014 annual report disclosures of the internal audit practices for a sample of Top 100 nonfinancial firms in Malaysia. Our results indicate that overlapping membership of the AC chair is associated with poor internal audit practices, especially the absence of disclosure on compliance with the International Professional Practices Framework and the absence of an internal audit charter. In addition, we find that AC chair financial expertise is more likely to be associated with the adoption of risk-based internal auditing practices.

Do Share Repurchases Distort Stock Prices? Evidence from the United States and Malaysia

Heavy share buyback years after the global finance crisis 2008–2009 drew criticism from scholars and financial press that share repurchases were being used by firms to manipulate their stock prices. This paper examines whether a greater firm’s repurchase intensity distorts stock prices reflecting to information. We analyse 2 sets of unbalanced panel data that contain a sample of 337 US and another sample of 167 Malaysian repurchasing firms between 2012 and 2016. Contrary to the criticism, we find that a greater firms’ share buyback intensity in the USA stimulates faster incorporation of information in price and results in more efficient stock prices. The main findings hold true and are robust when an alternative measure of share repurchase intensity was used. The findings of US sample support the notion that share repurchase serves as a signalling tool and price support to promote more efficient stock prices. We also find no strong evidence supporting the notion that shares repurchased by Malaysian firms distort stock prices. JEL Classifications: G10, G14, G35

Maximizing Zakat Revenues in the COVID-19 Period

The Novel Coronavirus (COVID-19) pandemic has put the entire world into not only health but economic and social problems. Currently, finding a sustainable way out of the poverty caused by the pandemic had become a global concern. Unfortunately, even as poverty alleviation has for long been a key issue in the agenda of OIC member countries, the emergence of the pandemic has pushed down these countries into a poverty hole deeper than before. Islamic social finance instruments, particularly zakat, waqf and Islamic microfinance are believed to be valid instruments that could mitigate the consequences of the pandemic. Against this, the present study aims to provide a way of maximizing zakat revenues in OIC member countries through the creation of zakat accounting standards. The study found only two existing zakat accounting standards for the computation of business zakat. The first one was developed by AAOIFI in 1998 and became effective in 1999, primarily for the application by IFIs. Given the limitation and inappropriate application of AAOIFI’s zakat accounting standard in the Malaysian context, the Malaysian Accounting Standard Board developed another standard suitable for the application by Malaysian firms effective from 2016. Thus, the foregoing findings imply the need for each OIC member country to create the zakat accounting standard to adopt by its firms in order to maximize zakat revenues.

PREDICTING FINANCIAL DISTRESS IN THE MALAYSIAN MARKET: HAZARD MODEL VERSUS THE LOGIT MODEL

The increasing numbers of financially distressed firms in the Malaysian market demonstrate the importance of predicting financial distress among firms in Malaysia. Using firm financial ratios, this study focuses on predicting financial distress using the hazard model and logistic regression (logit model) based on the Malaysian market. This study used listed firms on the Malaysian stock market from 2000 to 2018 to create two sets of data comprising the main sample and holdout sample in order to compare the predictability between hazard and logit models. The results clearly show that the hazard model is better compared to the logit model in predicting financial distress for the Malaysian market since more variables were found to be significant in addition to the model being more consistent in terms of accuracy.

THE IMPACT OF COVID-19 ON THE FINANCIAL PERFORMANCE OF PN17 AND GN3 STATUS FIRMS: DOES IT ADD SALT INTO THE WOUND?

The Covid-19 pandemic has brought about major changes to the Malaysian economic landscape in terms of productivity level, investment, and household spending. Nonetheless, the unprecedented presence of Covid-19 has caused an unexpected level of disruption to firms from a liquidity and leverage perspective that impacts financial performance. This study focused on financially distressed firms classified under PN17 and GN3 by Bursa Malaysia. Hence, the aim of this study is to examine the impact of liquidity, leverage, and the Covid-19 pandemic period on the financial performance of financially distressed firms in Malaysia which are classified as PN17 and GN3 firms. By using liquidity ratios, financial leverage ratios, and a dummy variable of Covid-19, the result showed that the current ratio, net working capital, and debt ratio were found significant to affect the financial performance. Meanwhile, there is no significant evidence to support that the Covid-19 pandemic has an impact on the performance of financially distressed firms. The finding indicates that the financially distressed firm’s financial performance was purely due to bad management practices, and not contributed by the Covid-19 pandemic.

EFFECT OF GREEN PRODUCT DESIGN AND INSTITUTIONAL PRESSURES ON MANUFACTURING FIRMS PERFORMANCES IN MALAYSIA : IMPLEMENTATION OF REVERSE LOGISTICS PRODUCTS

Purpose: This study is to explore the empirical analysis of green product design and institutional pressures on firm’s performances by employing from ISO14001 certified electrical and electronic manufacturing firms in Malaysia.
 Methodology: The study has collected the data from the Electrical and Electronics (E&E) manufacturing firms in Malaysia certified with ISO 14001 through online survey questionnaire from the FMM-MATRADE Industry Directory for Electrical and Electronics 2019/2020, the sampling frame is 177 companies and a sample size of 122 with 89 return response using convenient sampling.
 Findings: The results indicated that design for disassembly is necessary to produce valuable inventories from every product except of disposal whereas design for environment has slight influence on repair and disposal activities. As the evidence show that green product design, institutional pressure and reverse logistics product are inter-related, firms ought to undertake environmentally proactive approaches to generate benefits for the firm’s overall performances.
 Conclusion: The study concludes that the green product design, government, customers and competitors have statistically significant positive influences on reverse logistics towards firms’ performances.
 Recommendation: Future study should consider the inclusion of non-ISO14001 certified E&E manufacturing companies to expand the sampling frame to obtain greater generalizability of findings. Additionally, future studies ought to investigate the effect of other predictors such as liberalized return policy
 Unique contribution to theory, practice and policy: Since manager’s decisions and interactions take place within a social network that is affected by stakeholders, a theoretical perspective that accounts for the impact of the social climate, rather than simply the economic, rational perspective alone, is more encompassing and may better explain organizations’ behaviors.

Chinese CEO, Risk Taking and the Power of CEO: Empirical Evidence from Malaysian Family Firms

This paper examines the risk taking behaviour of Chinese CEO. Our analysis is based on a sample of 362 family firms in Malaysia over the 2009-2015 period using panel GMM methodology. Firstly, our results offer evidence that Chinese CEOs are risk taking. We then examine how CEO power, in the context of Finkelstein’s (1992) structural power, ownership power, expert power and prestige power, might drive risk taking of Chinese CEOs. The results are rather mixed where greater ownership power is likely to promote higher risk taking but greater expert power resulted in lower risk taking. We further show that corporate governance can mitigate risk taking of Chinese CEO in family firms. When the proportions of independent directors and foreign institutional shareholdings exceed the median thresholds of 40% and 5%, respectively, we find that CEO risk taking behaviour turns from positive to negative. Stronger evidence is found when we adjust the thresholds to the 75th percentile of 50% and 15%, respectively. The result is also robust with the use of leverage as a measure for CEO risk taking.

The impact of COVID-19 pandemic on the Malaysian firms’ operation

Background. The worldwide economic impact of the COVID-19 pandemic is comparable with the largest disastrous events of modern human history, such as the first and second world wars. This study investigated the nationwide impact of the pandemic on the local Malaysian firms.Methods. A cross-sectional, online survey was carried out in East and West Malaysia by inviting the Malaysian firms’ executives to fill in a questionnaire that was adopted from previous similar studies in other countries. The final questionnaire included 16 questions distributed in three categories. The executives of firms were contacted through email and social media. SSPS was used to analyse the collected data.Results. A total of 379 responses were received. Nearly 42% of firms reported a small impact with some difficulties in business operations but overall stability. Approximately 32% of businesses were severely impacted, and operations were barely maintained. Six percent of the firms had no significant difficulties and 5.3% reported that the pandemic provided new opportunities for development.Conclusion. Almost one-third of the Malaysian firms are affected significantly by the COVID-19 pandemic. The business operation of half of the Malaysian firms is also affected to some extent. Supportive policies are needed to reduce the companies’ manufacturing costs and assist them in surviving and eventually returning to normal business operations.

Environmental, Social and Governance (ESG) disclosure, competitive advantage and performance of firms in Malaysia

Abstract The objective of this research is to investigate the effects of firms’ ESG (Environmental, Social and Governance) disclosures on firm performance, moderated by firm competitive advantage. The sample of the data is 3966 firm-year observations from year 2012–2017 of 661 firms listed in the Bursa Malaysia. To improve the robustness of our analysis we adopt clustering techniques in our regression analysis. The findings of this research indicate that ESG disclosure improves firm performance even after controlling for competitive advantage. We also find consistent evidence that an increase in ESG disclosure by one unit will increase firm performance by approximately 4 percent in Malaysia. The implication of this research is the need to re-examine the level of ESG disclosure and the financing incentive for firms with high ESG disclosure scores as high scores of ESG are associated with higher competitive advantage. Further, policymakers can enhance regulatory frameworks by incorporating ESG across various investment activities and value creation initiatives.

An evaluation of environmental sustainability performance via attitudes, social responsibility, and culture: A mediated analysis

Demands for environmentally sustainable construction are driving firms towards the adoption of environmental sustainability practices, and the rising regulatory burden to reduce impacts on the intending users and other stakeholders may demand firms re-strategising their internal factors and level of compliance towards environmental sustainability in project delivery. Using a cross-sectional data collection method, 185 respondents from Malaysian G7 construction firms participated in this research. We utilised partial least squares path modelling for data analysis. Our findings established strong empirical evidence for the hypothesised positive effects of company culture, managerial attitudes and coercive pressure on environmental sustainability performance. However, social responsibility is revealed to have no effect on environmental sustainability performance. This is not unconnected with the fact that most Malaysian firms incur more social responsibility expenditure in the social sector than the environment. Our findings also established that coercive pressure is a positive mediator and a catalyst that plays a complementary role between managerial attitudes, company culture and social responsibility, and environmental sustainability performance. Policy implications and future study's directions are equally discussed.

The Determinants of External Auditors’ Independence for Politically Connected Firms in Malaysia

The auditing profession is a major concern for stakeholders and has been in a quagmire for the past years. To overcome the concern, client firms must take the initiative to assure that the management does not put pressure on the external auditors. Therefore, firms need to take part in positively influencing external auditors‟ independence to reduce the complexity of audit procedures, and consequently, improve external auditors‟ independence. Thus, the determinants of factors are needed to assure and maintain the independence of the external auditors at any time to perform their audit work. Hence, the main objective of this study is to examine the determinants of external auditors‟ independence among politically connected firms in Malaysia. The determinants are classified into two which are, first, auditor attributes namely, audit tenure and non-audit fee, and second, audit committee characteristics which consist of audit committee‟s independence and audit committee‟s diligence. Four hypotheses were developed and tested using a total of 46 sample firms from 2014 to 2018 with 230 firm-year observations. This study used secondary data from which the information was obtained from annual reports and DataStream. The results reveal that non-audit fee and audit committee‟s diligence influenced external auditors‟ independence, whereas audit tenure and audit committee‟s independence did not. Altogether, this study has provided useful information and implications for the professional bodies and Bursa Malaysia to help strengthen the principles of auditors‟ independence in politically connected firms.
 Keywords: Auditor Attributes, Audit Committee, Auditor Independence, Political Connection

CEO generational differences, risk taking and political connections: Evidence from Malaysian firms

This paper examines the impact of generational differences between Chief Executive Officer (CEOs) with regards to risk taking, proxied by corporate leverage. Further, we investigate whether this relationship is exacerbated or attenuated by political connections. Using a Malaysian dataset for the period 2005 to 2016, we find that Builder CEOs (Generation X, Gen X) are positively associated with corporate leverage, while no significant results are obtained for Seeker CEOs (Baby Boomers). In addition, the positive association is exacerbated if the Gen X CEOs are connected to top politicians in Malaysia. Our additional analyses show that the results are largely driven by duration of political connections and ownership structure of the politically connected firms. This suggests that heterogeneous political connections influence Builder CEOs’ decisions on corporate leverage.

Non-linear relationship between foreign currency derivatives and firm value: evidence on Sharīʿah compliant firms

PurposeThis study examines the impact of hedging on firm value of Sharīʿah compliant firms (SCFs) in a non-linear framework.Design/methodology/approachThis study employs the system-GMM for dynamic panel data to examine the influence of derivatives usage on firm value (Tobin's Q, ROA and ROE). The sample comprised of 59 non-financial SCFs engaged in derivatives from 2000 to 2017 (18 years). The Sasabuchi-Lind-Mehlum (SLM) test for U-shaped is performed to confirm the existence of the non-linear relationship.FindingsThis study concludes that hedging significantly contributes to firm value of SCFs based on the non-linear framework. This study suggests that, first, the non-linear relationship occurs due to the different degree of derivatives usage and risk. Second, firms practice selective hedging to maintain the upside potential of firm value.Research limitations/implicationsThis study has important implications. First, the importance of risk management via derivatives to increase firm value, second, the evidence of selective hedging from the non-linear relationship between derivatives and firm value and third, the need for quality reporting on derivatives engagement by firms in line with the required accounting standard on derivatives.Originality/valueThis study fills the gap in the literature in relation to the risk management strategies of SCFs in three aspects. First, re-examines the relationship using recent data. Second, examines the relationship in the non-linear framework as the limited studies found in the literature on Malaysian firms are only based on linear relationship. Third, determines whether hedging undertaken by firms is optimal as this can only be addressed using the non-linear framework. This study is robust to the various definitions of firm value (Tobin's Q, ROA and ROE) and non-linear methodologies.

The relationship between green operation and sustainable quality performance: the mediation role of environmental technology

This study examines the relationship between green operations and sustainable quality performance, by incorporating environmental technology as a mediator. Using a sample of 124 firms in Malaysia’s industrial products and service companies, a proposed set of hypotheses are tested using partial least squares structural equation modeling, which allows for consistent analysis. The results show that green operations positively impact environmental technology. Likewise, both these constructs have a significant relationship with sustainable quality performance. Moreover, environmental technology positively mediates the relationship between both green operation and sustainable quality performance of firms. These specific findings can be insightful for technical and operational managers when they respond to multiple stakeholders’ specific environmental and competitive expectations. The findings provide empirical evidence for policymakers, technical and operational managers in advancing green operations with specific operational functions and responsive to the importance of integrating innovative environmental technology toward sustainable quality performance.

Assessing Organisations’ Readiness for Technological Changes in Construction Industry

Of late, the advancements in technology have witnessed a spike in the number of schemes aimed towards enhancing the deployment of technologies in construction-based entities, thereby increasing the demand for technological modifications. This paper intends to scrutinise the keenness of construction entities to identify technological changes within the construction sector. The goals of this research work are to ascertain the degree of willingness for technological alterations, the norms which construction entities should possess regarding the readiness for technological alterations, and the obstacles encountered by construction firms in terms of technological alterations. Ten semi-structured interviews were carried out comprising ten G7 contractors in Selangor and Kuala Lumpur regarding on the implementation and adopting the technological changes within their companies. Based on the observations, most construction firms in Malaysia are fairly prepared to encounter technological fluctuations. Furthermore, the research deliberates many norms which are essential to generate the technological readiness in construction firms along with the obstacles which could impact the organisational inclination for technological changes. This work intends to help construction companies evaluate their degree of readiness and organise themselves for better adoption of technological alterations in their businesses.

The Impact of Working Capital Management on Firm Performance across Bumiputera and Non Bumiputera Manufacturing Firms in Malaysia

Working Capital Management (WCM) plays a vital role in companies’ both operational and financial decisions. WCM refers to all strategies adopted by the company to manage its short-term assets and short- term liabilities with the objective to ensure that it continues with its operations and meet its debt obligations when they fall due. There is lack of study being conducted on the effect of WCM on the profitability of firms in Malaysia, especially in manufacturing sector. Therefore, this study aims to investigate the relationship and the impact of WCM on firm performance across Bumiputera and Non-Bumiputera manufacturing firms in Malaysia. The analysis of panel data is conducted on sample size of 40 listed manufacturing firms from 2009 until 2018. This study employed descriptive statistics, correlation analysis and Pooled Ordinary Least Squares (OLS) to test the effect of inventory days, account receivable days, and account payable days (independent variable) on firm performance measured by return on assets (ROA). The findings show that there is significant negative relationship between inventory days and account receivable days on firm performance. While, account payable days shows an insignificant impact for both manufacturing firms and negative relationship on bumiputera firm performance and positive relationship on non-bumiputera firm performance. For future research, it is suggested that new the impact of WCM on firm performance in other sector in Malaysia can be measured.

Does Ethnicity Matters in Capital Structure Decision in Family Firms? Overview of Agency Theory

Drawing on the evidence indicating that prominent features of Asian companies are notably the concentrated ownership with extensive family ownership and dominance of controlling shareholders controlled by two main ethnic groups in Malaysia, namely the Chinese and the Malays, this study attempts to investigate the effect of ownership and ethnicity on the financing decisions of Malaysian family firms.

Institutional Investors Ownership and Firm Value: Evidence from Malaysia

Institutional investors play a significant role as an external watchdog to promote good governance to uphold firm value. The existence of institutional investors as shareholders is able to reduce the agency problem and the costs that arise from shareholder-manager relationship. This study aimed to examine the influence of institutional investors’ shareholdings and firm value among public listed firms in Malaysia. Specifically, it is argued that only pressure-insensitive institutional investors play an active monitoring role to increase a firm’s value, while pressure-sensitive investors, do not. This study employed 595 public listed firms from the main market in Bursa Malaysia for the period 2013 to 2017 (2795 firm-year observations). The results show that the pressure-sensitive and pressure-insensitive investors are positively significant to a firm’s value. These findings revealed that institutional investors in Malaysia play a significant role in increasing a firm’s value. This study will have a significant contribution to firms and the academic literature which states that all types of institutional investors in Malaysia are effectively monitoring their roles as an external corporate governance watchdog. The existence of these investors will be able to promote better governance and increase a firm’s value. Keywords: institutional ownership, pressure-insensitive and pressure sensitive institutional investors, firm’s value