Corporate governance reforms and shareholders’ confidence in emerging markets

Abstract

Purpose The purpose of this paper is to investigate the relation of corporate governance (CG) attributes, such as separate leadership (SL) structure, independent chair (IC) of the board, and the proportion of independent directors on the board (Bind) recommended by the new Malaysian Code on Corporate Governance (2012), with firms’ market performance measured by share market price. Design/methodology/approach The paper uses a randomly selected sample of 150 non-financial Malaysian listed companies. To find the distinct impact of the code, the paper explicitly divides the sample into two-year pre-context (2010-2011) and two-year post-context (2013-2014) of the code. Besides descriptive statistics, the study also employs correlation and multiple regression estimators. Findings By comparing the pre-context and post-context of the code, the study found that SL and Bind have a significant positive relation while IC of the board has a significant negative relation with share market price after enactment of the code. Research limitations/implications The paper has a limitation of using only two years of data due to its non-availability particularly after enactment of the code. The findings show that the new code slightly improved compliance to the CG attributes investigated. Based on findings, the study also recommends further improvement in compliance to CG codes and other voluntary regulations in Malaysia. Originality/value Besides contributing to the limited and incongruent literature in pre-context and post-context of CG regulations, the paper also provides important insights for regulators and policy makers of the emerging markets like Malaysia.

Different is Better: Does Difference in Age and Ethnicity of the Directors Matter for Corporate Performance in Malaysia?

“…Due to potential effects, the study includes age and size (Haseeb Ur Rahman et al, 2017a) of the sample firms as control variables. Board size, CG reforms (MCCG 2012), and the effects of time (5years) and industry (9 sectors) are other control variables in the study.…”

“…The findings are consistent with Rahman et al (2017b) who found that an increase in firms' age negatively affects their performance. FSIZE has a significant positive impact on firms' financial performance (ROA) which indicates that large firms have substantial assets the efficient utilization of which improves firms' financial performance (Haseeb Ur Rahman et al, 2017a). The significant positive association of FAGE and FSIZ with SP has an explanation that shareholders express confidence in old, already established, and large firms due to their experience and potential resilience for the economic and financial crisis (Rahman et al 2017a).…”

“…As per both the estimations, COD has a significant negative impact on ROA. This could be explained in that regulatory reforms complicate the already in practice structure of the firms that affect their efficiency and thus profitability through increased costs, particularly in the short run (Haseeb Ur Rahman et al, 2017a). The significant positive coefficient of COD implies that shareholders believe in the introduction of new code for improving firms' compliance with good CG practices including the protection of shareholders' interests.…”

“…Third, it contributes to the literature and policy especially after the enactment of MCCG 2012 that requires increasing boardroom diversity. This is further pronounced as the previous two codes of the country -MCCG 2000 and MCCG 2007 not addressed the issue of boardroom diversity and thus the prior literature could not focus on the subject in the regulatory context (Bursa Malaysia 2012; Rahman et al 2017a;Rahman, Ibrahim, and Che -Ahmad 2015). Fourth, it enriches the literature by using financial performance as an outcome variable that is still considered important for firms' success, especially in developing countries.…”

“…Like other countries, Malaysia also aimed to increase boardroom diversity as evidenced by its third CG code -Malaysian Code on Corporate Governance (MCCG) introduced in March 2012 (Ismail et al, 2013; Malaysian Corporate Code on Governance, 2012; Haseeb Ur Rahman, Rehman, et al, 2018;Haseeb Ur Rahman, Zahid, et al, 2018). However, among other aspects of the boardroom diversity, only gender aspect could be prioritized and remained a subject of high interest for the regulators, practitioners, academicians, and researchers around the world and in Malaysia (Baker et al, 2020;Haseeb Ur Rahman et al, 2017a;Zahid et al, 2019). The literature paid relatively less attention to other dimensions of boardroom heterogeneity like age, ethnicity, nationality, professional background, and cognition of the directors (Baker et al, 2020;Ezeanyim, 2020).…”