Corporate governance and financial performance (A study of Malaysian listed companies)

Abstract

The existing studies often find statistically controversial effects of corporate governance and ownership on firm financial performance in developed countries. Unfortunately, there are rare empirical studies on emerging markets while they often show wider variations in corporate governance practices, which may have an impact on firm performance and dividend policy. A good example in this field is Malaysia. After independence in 1957, Malaysia has faced many challenges such as riots in 1969 and financial crises in 1997. These factors caused many reforms in corporate ownership and governance rules in this country. This study wants to find out how corporate governance and ownership can affect performance of Malaysian listed companies. This study is important and new in two ways. First, Malaysia is a fast developing country and in order to accelerate their progress and avoid any interruption, they tried to accept best practices in corporate governance during last decade. We want to examine the effect of these changes on reality and on the performance of Malaysian listed companies. Second, there is no similar research in Malaysia in this area. The result of this research can help to see the real effect of Bursa Malaysia policies to regulate market and since this research is quantitative, its results can illustrate to what degree corporate governance rules and regulations were successful in Malaysia. The data used in this research are secondary data gathered from listed companies in main and second Bursa Malaysia boards. By regression analysis, we tried to find out to what extent corporate governance is acting successfully. The results of this study reveal that corporate governance has a positive effect on Tobin’s Q, Dividend/Sales, Debt/Assets, and Debt/Equity of company. Also a narrower bound of corporate governance like TDI Disclosure or Shareholders have positive effect on Return on Assets (ROA) or TDI disclosure can increase Altman’s Z-Score which means by increasing the transparency of board activities, firms can reduce their risks.