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The 6th International Conference on Governance, Fraud, Ethics and Social Responsibility 2015 (iConGFESR 2015)

Corporate Governance Practices and Firm Performance after Revised Code of Corporate Governance : Evidence from Malaysia Siti Marlia Shamsudin1, Wan Razazila Wan Abdullah, Amir Hakim Osman3 Faculty of Accountancy1 Universiti Teknologi MARA, (Perak) Malaysia [email protected]

Faculty of Accountancy3 Universiti Teknologi MARA, (Perak) Malaysia [email protected]

Faculty of Accountancy2 Universiti Teknologi MARA, (Perak) Malaysia [email protected] Abstract—This study examines the relationship between corporate governance and firm performance of public listed firm in Malaysia. In March 2000, the Malaysian Code of Corporate Governance (MCCG) was first issued and has been revised twice in 2007 and 2011. The board’s role in governance has been emphasized in the revised MCCG and directorship of the director in public listed company is limited to five only. Thus, this study aims to evaluate whether the revised MCCG will give impacts on the firm performance. The sample consists of top 100 firm listed on Bursa Malaysia for the period from 2012 to 2014. Analyses of descriptive statistics, correlation analysis and multiple regressions are used to address the research hypotheses. The finding of this study reveals significant relationship between the revised MCCG with the firm performance. Keywords—Corporate Directorship, Malaysia.

I.

Governance,

Firm

Performance,

 Introduction  

Over the years, a number of studies have examined the relationship between corporate governance and firm performance. In the earlier study, corporate governance focuses on the issue of relationship between stakeholders, management, board of directors and how the firm should be controlled and managed (Krechovska and Prochazkova, 2014; Gupta and Sharma, 2014; Andreau, Louca and Panayides, 2014). However, in the event of the Asian financial crisis in 1997 and high profile corporate collapses have revealed the failure of corporate governance systems internationally (Sulong and Mat Nor, 2008). In 1997, the Asian financial was first started in Thailand and had caused the local currency, Thai Baht collapsed. Later, the financial crisis was spread to other Southeast Asian countries including Indonesia, Malaysia and Philippines and had been extended to South Korea, Hong Kong, Taiwan, China and Singapore.

Extensive studies have been devoted to examine the factors triggered the financial crisis and among the factors cited in the literature are the weakness of legal institution for corporate governance, inadequate financial disclosure, and lack of corporate transparency (Gupta and Sharma, 2014; Duk-Ho Kim, Kim, Byun, Chun and Se-Hak, 2013). In response of these failures, many countries have implemented a variety of regulatory and change the policy to strengthen corporate governance. South Korea experienced the changes Chaebouls or conglomerates which led to significant improvement in their corporate governance structure (Duk-Ho Kim, Kim, Byun, Chun and Se-Hak, 2013). Singapore introduced corporate governance code in 2001 (Nguyen, Locke and Reddy, 2014) and Sri Langka introduced Code of Best Practice in 2008 (Guo and KGA, 2012). In the Malaysian context, the corporate scandal reported not long ago such as Bumiputra Malaysia Finance, Technology Resources Industries, Perwaja Steel, Malaysia Airline and Sime Darby has shown that weakness in corporate governance which led to corporate failure and economic crisis. In addition, the impact of the Asian financial crisis 1997 also play important role to the changes of the role of corporate governance in Malaysia. In lesson from the financial crisis and corporate scandal, good governance practices are needed. As a result, the Malaysian Code of Corporate Governance (MCCG) was introduced in 2000 (Abdifatah, 2014). MCCG 2000 emphasized on the risk management and the responsibilities of the board of directors to achieve proper balance between the risk and return to shareholders (Ghazali and Manab, 2013). Later, in 2007 the MCCG has been revised and MCCG 2007 was introduced which focused on strengthening the board of directors, audit committee and internal audit function (Abdifatah and Sanni, 2015).

The 6th International Conference on Governance, Fraud, Ethics and Social Responsibility 2015 (iConGFESR 2015) In 2011, the Securities Commission issued Corporate Governance Blueprint 2011. CG Blueprint 2011 emphasizes on the self and market regulation to complement the comprehensive regulatory framework and also to promote good compliance and corporate governance culture. One of the CG Blueprint 2011 recommendations is the directors are permitted to hold directorship in the public listed firm for not more than five. Finally on 31 March 2012, the Malaysian Code on Corporate Governance 2012 (MCCG 2012) was released. MCCG 2012 sets out 8 principles and 26 corresponding recommendations. A number of studies emphasized on the relationship between corporate governance and firm performance. In Malaysia, the recent study done by Abdifatah and Sanni (2015) examined on the association between firm performance and corporate governance before (2006) and after the revised code (2008-2010). However, still relatively few studies have addressed the impact of the revised MCCG 2011 with the firm performance. Therefore, this study provides evidence on the impact of the revised MCCG 2011 with the firm performance. Previously, Bursa Malaysia listing requirement allows the director to hold up to 25 directorships (Latif, Kamardin, Mohd and Adam, 2013). However, in response to the recommendation in the revised MCCG 2011, the latest Bursa Malaysia Practice Note Chapter 15, No 15.06 of listing requirement stated that a director of an applicant or a listed issuer must not hold more than 5 directorships in listed issuers. Consequently, the finding of this study is significant to study the impact on the number of directorship hold by the director and how it will affect the firm performance. On the top of that, this study also examines the relationship of corporate governance practices, board independence, board size and CEO duality relationship with firm performance. The composition of this paper starts with the literature reviews and hypothesis development on the next section followed by the research methodology explaining the sample selection procedure. The result and discussion are presented in section 4. Section 5 contains the conclusion of this study.

Literature Review &  hypothesis development  II.

A. Review of corporate governance mechanism According to Gupta and Sharma (2014) good corporate governance will develop firm’s brand name and improve the confidence of the stakeholder and investors. The investors perceived that firm with good corporate governance tends to have higher performance and better credibility (Wijethilake, Ekanayake and Perera, 2015). Consequently, good corporate governance will protect the shareholders’ right, enhancing corporate transparency and ensuring a greater closure of financial and non-financial information (Black, Kim, Jang and K-S Park, 2015; Abdifatah, 2014; Munisi and Randey, 2013; Duk-Ho Kim, Kim, Byun, Chun and Se-Hak, 2013). The results from many empirical studies are consistent with the argument that well governed firm have high performance (Black, Kim, Jang and K-S Park, 2015; Abdifatah and Sanni,

2015; Conheady, Mcllkenny, Opong and Pignatel, 2014; DukHo Kim, Kim, Byun, Chun and Se-Hak, 2013; Sami, Wang and Zhou, 2011). For example, Munisi and Randey (2013) found ROA is positively and significantly associated with the firm performance. Apart from that, Duk-Ho Kim, Kim, Byun, Chun and Se-Hak (2013) evidence that Tobin’s Q has positive relationship with the firm performance. In general, corporate governance components can be divided into two mechanisms which are internal mechanism (e.g., board of directors, executive compensation, board meeting, CEO duality, debt financing and executive directors’ shareholdings) and external mechanism (e.g., the market for corporate control, legal and regulatory rules, investor monitoring, labour and product markets) (Abdifatah and Sanni, 2015; Najjar, 2014). This study focuses on the board of directors as important internal control mechanism as recommended in CG Blueprint 2011. The boards of directors are the key to good corporate governance (Germain, Galy and Lee, 2014; Romano and Guerrini, 2013). In addition, Balsmeier, Buchwald and Stiebale (2014) support the directors play important role in defining the business strategies and an important advisory role. Therefore, the effective and efficient board of directors will ensure the firm is efficiently managed and increase the shareholders confidence and give positive impact to the firm performance. B. Multiple-directorships In malaysia, in the earlier studies, it is common for independent directors to have multiple directorships considering the high limit of the directorship is permitted (Latif, Kamardin, Mohd and Adam, 2013). However, Bursa Malaysia Practice Note Chapter 15, no 15.06 of listing requirement, a director is prohibited from holding more than 5 directorships in public firm (Bursa Malaysia). In general, multiple directorships are associated with the “Reputation” and the Busyness theory (Jiraporn, Kim and Davidson III, 2008). L-Y Chen, Lai and Chen (2015) and Cook and Wang (2011) support multi-firm directors can provide better information than single-firm directors because a greater number of board appoinments signal a director’s ability to provide higher quality governance. Thus, multiple directorships can be value-enhancing. Early researchers argue that directors with more outside boards will benefit the firm because they are more experienced, provide better advice and offer better monitoring (Jiraporn, Kim and Davidson III, 2008). According to Jermias and Gani (2014) firm with the same governance structure can be differentiate in term of ability and capacity of the directors on the board to provide resources and expertise in performing their duties. The directors with multiple directorship have strong external networks and can obtain more information and able to formulate and implement stable strategies (L-Y Chen, Lai and Chen, 2015; Kaczmarek, Kimino and Pye, 2012). They also have the opportunities to learn the new strategy alternatives, approach and innovation that can facilitate the performance of board task duty and linkages to external organizations (Jermias and Gani, 2014). In addition, in order to establish a reputation as the decision expert in the industry,

The 6th International Conference on Governance, Fraud, Ethics and Social Responsibility 2015 (iConGFESR 2015) multi-firm directors are strongly motivated to work hard and more cautious in making investment decisions. However, others have suggested directors who serve on multiple boards are too busy and cannot devote sufficient time to each firm and compromised the ability to adequately monitoring management (Kaczmarek, Kimino and Pye, 2012). As a result, it would affect their commitment and capacity which lead to poor managerial oversight and give negatively impact on firm performance. Kaczmarek, Kimino and Pye (2012) found multiple directorships compromise the directors’ attention toward the firm board while Jiraporn, Kim and Davidson III (2008) support the busyness of directors is negatively associated with the firm performance. In addition, Latif, Kamardin, Mohd and Adam (2013) found directors with multiple directorships have no impact on the firm performance. Hence, there is a need to further test this theory, particularly to take into consideration the recommendation in the revised MCCG 2011. The following expected hypothesis is stated in the alternative form: H1. The multi-directorship is negatively associated with firm performance. C. Board independence Bursa Malaysia Practice Note 13, no 1.1 of listing requirement defined independent directors as a director who is independent from management and free from any business or other relationship which could interfere with the exercise of independent judgment or the ability to act in the best interest of the firm. Therefore, positive relationship is expected because of independent director can give positive impact on the monitoring function. According to Nguyen, Locke and Reddy (2014), the board diversity has a positive impact on the firm performance due to better monitoring and control, more independent and lead to higher firm performance. Duk-Ho Kim, Kim, Byun, Chun and Se-Hak (2013) reveal in their study that independent directors are less dependent on management and more concern in protecting their reputation in the market and thus may function better than nonindependent directors. Balsmeier, Buchwald and Stiebale (2014) found in their studies that independent directors with an appropriate professional background can provide valuable knowledge and expertise to the firm while Wu and li (2015); Al-Najjar (2014) and Jiraporn, Kim and Davidson III (2008) point out that independent directors provide better and effective monitoring and control thus increase the overall firm performance. However, some of the prior studies supported that independent directors are negatively influence the firm performance. Sheikh, Wang and Khan (2013) support the negative relationship between independent directors and Pakistani’s firm performance. Nguyen, Locke and Reddy (2014) found the board composition has no impact on firm performance due to independent directors may have lack of knowledge about the firm and industry while Bhuiyan (2015) support firm with higher number of independent directors have worse performance. Independent directors’ members may weaken the firm performance because they cannot devote

sufficient time to monitor the firm due to too many boards to serve. As a result, the advising capabilities and monitoring are reduced and affect the firm performance. Balsmeier, Buchwald and Stiebale (2014) argue that independent directors might more concern about their private benefits than the performance of the firm they are supposed to monitor and advise. These arguments have led to the following hypothesize: H2. An independent director is positively associated with firm performance. D. Board size Recently, there has been increasingly attention given by the policy makers and practitioners on the advisory function of supervisory board members regarding the strategic decision making (Balsmeier, Buchwald and Stiebale, 2014). Considering the crucial role played by the directors, it is important to ensure the ideal board size that could enhance the firm performance (Wijethilake, Ekanayake and Perera, 2015; Romano and Guerrini, 2014). The board size is essential characteristics of board functionality (Nguyen, Locke and Reddy, 2014). However, the empirical evidence of an optimal board size influenced the firm performance is still debatable. Peng, Mutlu, Sauerwald, Y.Au and Wang (2015) found the mean of board size is 11 in Mainland Chinese firms while 13 in British Colonial firms. Some studies have found that the ideal board size is around seven (Wahab, Pitchay and Ali, 2015; Andreau, Louca and Panayides, 2014; Nguyen, Locke and Reddy, 2014) while Romano and Guerrini (2014) found the average board members are five. Generally, the directors become less effective when they grow and tend to involve in bureaucratic problem. As a result, larger boards are likely to have difficulty in coordinating, communicating, participating and overseeing financial reporting and improving firm performance. However, Nguyen, Locke and Reddy (2014) found that larger board size contributed to higher firm performance in maritime industry whilst others found larger board size is positively associated with high performance (Romano and Guerrini, 2014). Germain, Galy and Lee (2014) support as the scope of the operations increases, a larger board is needed. Furthermore, Andreau, Louca and Panayides (2014) found that larger board size prevents from over-investment and increase firm performance. On the contrary, some view small board size is better to mitigate the problem of free-ride directors on the effort of others and increase the firm performance (Sheikh, Wang and Khan, 2013). Additionally, small board will encourage the board members to be actively involved and engaged in managing the firm. By doing so, it is easy to be communicated as the board members know each other’s and facilitate the decision making process. Based on the above arguments, how the board size affect the firm performance remain ambiguous. In line with the above arguments, this study proposes the following hypothesis:

The 6th International Conference on Governance, Fraud, Ethics and Social Responsibility 2015 (iConGFESR 2015) firm

data is taken from annual reports. The annual reports are downloaded either from the Bursa Malaysia or directly from the website of the company.

E. CEO Duality The board leadership structure has been debated in many past studies and produced mixed empirical results (Yang and Zhao, 2014). CEO duality refers to a board structure which the Chief Executive Officer (CEO) is also the chairman of the board (Wijethilake, Ekanayake and Perera, 2015). CG Blueprint 2011 recommended on the separation of the role of the chairman and CEO as it is important to ensure a balance of power and authority in decision making process. The literature has documented few arguments on the benefits and drawbacks of the CEO duality. In some countries, it is a norm for firm to separate the CEO and the chairman. According to Yang and Zhao (2014), the US firms has changed their leadership structure under the enormous pressure for the titles to be split or abolished. As a result, the number of firms in US combined the titles had dropped from 80% to 54% from 1970s to 2010. This is consistent with the result found in their studies which indicate CEO duality influenced the firm performance.

The initial sample comprises of top 100 firms in Malaysia as at 31/12/2014 and chosen based on market capitalization. Consistent with the study done by Abdifatah and Sanni (2015) top companies were chosen because they are actively trading in the market and the level of compliance with the regulatory changes in Malaysia is higher. The sample excludes the financial firm such as financial institution, banks, unit trust and insurance firm due to their difference in the regulatory requirement and standard. To facilitate the comparison of the results, the firm that do not have the required data available for the three years are also excluded. The selection of listed firm in Bursa Malaysia for this study has been summarized in Table I.

H3. Board size performance.

is

negatively

associated

with

With regard to the CEO duality, agency theory has been discussed numerously in the prior literature to be associated with the arguments against the firm performance (Jermias and Gani, 2014). The agency theory suggests the separation of the CEO because it is difficult for one individual to confer the duties as CEO and chairman. Jermias and Gani (2014) found negative relationship between CEO duality and performance which suggest that it is important to separate the CEO and the chairman of the board. CEO has the rights to make decision but has no control over the shareholders’ capital. Thus, CEO might not act in the best interest of shareholders and the impartiality of the board might be compromised. By using ROE as a performance measure, Bhuiyan (2015) evidence that firm having CEO duality has higher number of problems directors on the board. Hence, splitting the roles of CEO and chairman may diffuse and separate managerial decision from control decision (Conheady, Mcllkenny, Opong and Pignatel, 2014) and provide more clarity in the leadership and direction of the firm. The above arguments suggest the following hypothesis: H4. CEO duality is negatively associated with firm performance.

Sample description and  variables measurement 

TABLE I.

SAMPLE SELECTION

Total firm-size Initial sample

300

Less : Financial firms

(75)

Less : Total data that are considered outliers

(7)

Total firm-year in the final sample

218

There are numerous models used to contribute the corporate governance study. Consistent with the prior study on corporate governance and firm performance, this study employs multiple regression analysis to examine the relationship between corporate governance and firm performance after the revised MCCG 2011 by using SPSS software, version 20. Correlation analysis is used to assess the existence of multi collinearity among independent variables. This study formulated two regression models. The first model represents the accounting based performance, ROE while the second model represent market based performance, Tobin’s Q. Model 1: ROE = βο + β1MD + β2BIND + β3BSZ + β4DUALITY + β5SIZE + β6LEV + β7PROFIT + e

(1)

III.

A. Data and Sample Selection This study examines the relationship between corporate governance practices by the Malaysian listed firms after the revised MCCG 2011. The sample consists of public listed firms in Bursa Malaysia over the period of 2012 to 2014 to represent the three years of changes in the MCCG. This study comprises of financial and non-financial data. The financial information is obtained from DataStream while non-financial

Model 2: Tobin’s Q = βο + β1MD + β2BIND + β3BSZ + β4DUALITY + β5SIZE + β6LEV + β7PROFIT + e

(2)

The 6th International Conference on Governance, Fraud, Ethics and Social Responsibility 2015 (iConGFESR 2015) B. Dependent Variables This study uses Return on Equity (ROE) and Tobin’s Q to measure firm performance. In line with Black, Kim, Jang and K-S Park (2015); Nguyen, Locke and Reddy (2014); Sulung, Gardner, Hussin and Sanusi (2013); Zunaidah and Fauzias, (2008) Tobin’s Q is a market-value based measure of performance which is measured as the ratio of sum of market value of equity plus total debt divided by book value of total assets. Notably, ROE is accounting-based measure of firm performance. It is calculated as net income divided by shareholders equity (Bhuiyan, 2015; Abdifatah, 2014; Sheikh, Wang and Khan, 2013). C. Independent variables There are four independent variables in this study. Multidirectorship is calculated as the proportion of directors on the board with directorship in other firms to the total number of directors on the board. This is consistent with the studies done by Latif, Kamardin, Mohd and Adam, 2013. The board composition is measured as percentage of independent directors on the board (Wahab, Pitchay and Ali, 2015) and board size is measured as the number of directors on the board (Romano and Guerrini, 2014). Based on the past literature, CEO duality is an indicator whether or not a firm’s CEO is also the chairman of the board of directors. By reference to Nguyen, Locke and Reddy (2014) CEO duality is coded “1” if the CEO is also the chairman of the board and “0” otherwise. Firm, leverage and profitability are used as control variables to be consistent with other studies. Firm size is measured by using natural logarithm of the firm total asset (Peng, Mutlu, Sauerwald, Y.Au and Wang, 2015). The past literature has documented leverage has a significant impact on the firm performance. Therefore, leverage is included in this study. The leverage is measured as total debt divided by total asset to be consistent with the other studies (Bhuiyan, 2015; Yang and Zhou, 2014). Profitability is measured by using earning per share (EPS) to be consistent with Sulung, Gardner, Hussin and Sanusi, (2013).

Dependent Variable Tobin’s Q Return on Equity (ROE) Dependent Variable Multi-directorship (MD) Board Composition (BIND) Board Size (BSZ)

Dependent Variable

1 = CEO is also chairman 0 = CEO is not chairman Measurements

Firm Size (SIZE)

Natural logarithm of the firm total assets

Leverage (LEV)

Total debt divided by total asset

Profitability (PROFIT)

Earning Per Share (EPS)

  IV.

Result and Discussion 

A. Descriptive Analysis TABLE III. Variables

DESCRIPTIVE ANALYSIS

Minimum

Maximum

Mean

N

ROE

0.64

73.55

15.67

218

MD

0.13

1.00

0.69

218

BIND

0.15

1.00

0.46

218

BSZ

4.00

16.00

8.93

218

0

1

0.06

218

DUALITY SIZE

5.18

8.04

6.79

218

LEV

0.02

0.94

0.42

218

PROFIT

0.00

2.40

0.40

218

Measurements

Table III presents the descriptive statistic of the variables used in this study. Based on the sample of 218 firms, the minimum and maximum of the ROE are 0.64 and 73.55, respectively. The average multi-directorship is 69%. Despite the mandatory requirement of the Bursa Malaysia listing requirements, a director is prohibited from holding more than five directorships in public firm, the result indicates that more than 60% of the board members hold additional directorship in other firms. As for board independence, the average indicates that 46% of the board composition consists of independent directors which are in line with the recommendation in the revised MCCG 2011. However, there are some firms that didn’t comply with the requirement of one-third of the board members must consist of independent directors. The result is similar with the study done by Abdifatah and Sanni (2015). With regard to the board size, the minimum number of the board member is four while the maximum is sixteen. Based on the mean, the average number of board member is nine which suggest that public firm in Malaysia has larger board size. L-Y Chen, Lai and Chen (2015) also found the average board size is nine. As for CEO duality, the average is 0.06 which indicate that only 6% of the firms are served by the same person as both chairman and CEO.

The proportion of directors on the board with directorship in other firms to the total number of directors on the board. Percentage of independent directors on the board. The number of directors on the board.

The control variables can be divided into three which are size, leverage and profitability. The minimum and maximum of size are 5.18 and 8.04, respectively. On the other hand, the average for leverage and profitability are 0.42 and 0.40, respectively.

Table II presents the summary of the measurements of the dependent variables, independent variables and control variables used in this study. TABLE II.

CEO Duality (DUALITY)

MEASUREMENT OF VARIABLES

Measurements The ratio of sum of market value of equity plus total debt divided by book value of total assets. Net income divided by shareholders equity.

The 6th International Conference on Governance, Fraud, Ethics and Social Responsibility 2015 (iConGFESR 2015) B. Correlation Analysis The Pearson Correlation is conducted to identify the degree of the correlation exist between the variables. The correlation test confirms that no multicollinearity exists between the variables since none of the variables correlate above 0.50. C. Multiple Regression Analysis TABLE IV. Variables

REGRESSION ANALYSIS USING ROE

Coefficient

T-Statistic

P-Value

CONSTANT

77.857

10.768

0.000

MD

-6.853

-2.560

0.011**

BIND

-6.058

-1.134

0.258

BSZ

-0.219

-0.706

0.481

DUALITY

2.515

1.021

0.308

SIZE

-10.748

-9.005

0.000***

LEV

29.436

9.429

0.000***

PROFIT

19.457

13.238

0.000***

R-Squared

63.30%

Adjusted R-Squared

62.10%

F-Statistic (P-Value)

51.941 (0.000)***

Firm-years

218 Notes: *Significant at 10% level; ** Significant at 5% level; ***Significant at 1% level

TABLE V. Variables

REGRESSION ANALYSIS USING TOBIN’S Q

Coefficient

T-Statistic

P-Value

CONSTANT

-0.044

-0.440

0.660

MD

-0.016

-0.422

0.674

BIND

-0.146

-1.979

0.049**

BSZ

0.005

1.147

0.253

DUALITY

0.025

0.725

0.469

SIZE

0.013

0.808

0.420

LEV

0.589

13.655

0.000***

PROFIT

-0.020

-1.188

0.236

R-Squared

51.70%

Adjusted R-Squared

50.10%

F-Statistic (P-Value)

32.588 (0.000)***

Firm-years

221 Notes: *Significant at 10% level; ** Significant at 5% level; ***Significant at 1% level

The regression of the relationship between corporate governance and firm performance are presented in Table IV and V. This study tested four hypotheses by using two models. The first model shows the relationship between ROE and firm performance while the second model presents the market based performance, Tobin’s Q. For the analysis conducted in Model 1 measured using ROE, the model produce adjusted R2 of 62.10%, F-value is 51.941 and p-value is 0.000 and highly significant at 1% level. As for second model, Tobin’s Q, the adjusted R2 is 50.10%, F-value is 32.588 and p-value is 0.000 and highly significant at 1% level. The adjusted R2 indicates that 62.10% (Model 1) and 50.10% (Model 2) of the firm performance can be explained by the overall explanatory variables in this study. The regression result in Model 1, ROE indicates that multi-directorship is negatively and significantly associated with the firm performance, β-6.853, t = -2.560, p < 0.011 while for second model, Tobin’s Q, multi-directorship is negative but insignificant with firm performance. The negative relationship indicates, the greater number of directors holding additional directorships in other firms, it would result in poor firm performance. The finding is consistent with H1 that support multi-directorship is negatively associated with the firm performance, thus H1 is accepted. The result of this study is consistent with the prior research done by L-Y Chen, Lai and Chen (2015) and Jiraporn, Kim and Davidson III (2008), reported director with multiple directorships are likely overcommitted and perform poorly and thus leading to poor firm performance. Hashim and Rahman (2011) support in their study that directors holding multiple directorships have limited capacities and time constraint that may affect their ability to provide useful advice and reduced their monitoring effectiveness. Furthermore, multi-directors have different industrial background and due to differences in the information environment, it would weaken their ability to counsel the management. As a result, it may lower their capabilities in enhancing the performance of the firms. Thus, for the best corporate governance practices in Malaysia, the directorship of the directors should be limited. One of the listing requirements for a firm to be listed in Bursa Malaysia is a firm must ensure that one-third of the board of directors are independent directors. Moreover, the revised MCCG 2011 also emphasize on a firm having independent directors on the board to ensure the board remain independent and having the right skills to oversee the company. Thus, H2 suggest that independence director has positive relationship with the firm performance. The finding reveals that for the first model, ROE, it is found that board independence has insignificant negative relationship with the firm performance while second model, Tobin’s Q, the board independence is negative and significant at 5% level. The result is not consistent with the hypothesis that supports positive relationship with the firm performance. Therefore, H2 is rejected. The negative relationship implies that by having more independent director on the board, it would lower the firm performance. This finding is consistent with prior studies, such as Wijethilake, Ekanayake and Perera (2015); Abdifatah and Sanni (2015); Mollah and Zaman (2015) which concluded that by having independent directors on the board, they are not

The 6th International Conference on Governance, Fraud, Ethics and Social Responsibility 2015 (iConGFESR 2015) performing and led to poor firm performance. In Malaysia, it is a mandatory requirement for all listed firm to ensure that one-third of the director is independent director. Therefore, to comply with the regulatory requirement, independent directors are appointed and some of them may have lack of knowledge about the firm and affected their ability to advise and monitor the board and finally weaken the firm performance. It is expected for board size to have negative relationship with the firm performance. However, the results of both models are not consistent. The finding in the first Model, ROE, shows insignificant and negative relationship between board size and firm performance. This is consistent with the hypothesis. In contrast, for second model, Tobin’s Q, the result is also insignificant but documented positive relationship with the firm performance which support that the larger the board size, the higher the firm performance. In general, board involvement could enhance the firm performance. However, what is the optimal board size that could effectively increase the firm performance is still ambiguous. Wijethilake, Ekanayake and Perera (2015) in their study, suggested that the firm should be more careful in determining the board size as it can negatively affect firm performance. The inconclusive findings in this study suggest the necessity for more researches to investigate the ideal board size. This study supports that CEO duality is negatively associated with the firm performance. The first model, ROE shows that CEO duality has positive but insignificant relationship with the firm performance while second model, Tobin’s Q also indicates insignificant positive relationship with the firm performance which suggests that if the CEO is also a chairman, it could enhance the firm performance. This positive insignificant finding does not support the H4, thus H4 is rejected. The similar result is consistent with the study done by Wijethilake, Ekanayake and Perera (2015). As for control variable in Model 1, ROE, size is reported to be negatively and significantly associated with the firm performance, β-10.748, t = -9.005, p < 0.000. This finding implies that, the smaller the firm size, the higher the firm performance. The result is in line with the other study, Conheady, Mcllkenny, Opong and Pignatel (2014) evidence that smaller firms have greater opportunities to grow. Similarly, the regression result reveals that leverage is positive and significant with firm performance. This finding reveals that, the higher the level of leverage, the better the firm performance. Profitability has positive and significant relationship with the firm performance which suggests that high profitability firm has good performance. For Model 2, Tobin’s Q, only leverage is statistically significant at 1% level while the rest are not significant. V.

Conclusion  

This study provides empirical evidence on the impact of the revised MCCG 2011 on the firm performance of public listed firm in Malaysia. This study is done by using corporate governance attributes such as multi-directorship, board independence, board size and CEO duality. In addition, the

control variables such firm size, leverage and profitability are also included in the study. Using a sample of 218 firm-year observations from 2012 to 2014, it is found that the revised MCCG 2011 influenced firm performance. Based on the finding, it is found that multi-directorship is associated with decline in firm performance. Therefore, the implication of this finding is the presence of multi-directors on the board has unfavourable impact on the firm performance. On the other hands, the board independence is negatively associated with firm performance which suggests that by having more independent directors on the board, firm is performing poorly. Even though the main role of independent director is to oversight the governance of a business, having too many directors on the board may jeopardize the role. This study only focus on the impact after the MCCG 2011 has been revised and excludes the analysis before the MCCG 2011 is revised. Therefore, future research may examine the impact of the MCCG before and after the code has been revised. In addition, future research may also include various industries because different nature of business may have different performance. Future researchers may also include more variables of corporate governance and using different performance measure.

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