Dynamic relationship between corporate board structure and firm performance: Evidence from Malaysia

Abstract

Corporate governance is being acknowledged by almost all kinds of business communities and firms as an ultimate driver to improve the firm financial performance. This study examined the association between corporate board structure and corporate financial performance using a dynamic panel model. Principles of corporate governance deliver an explicit board structure for the purpose to facilitate the board members, which helps in making good decisions. The board of directors consists of the CEO, the chairman, the internal directors, and the external non‐executive directors to work for the shareholders. This study undertakes different corporate governance attributes including non‐executive directors, board size, and CEO duality and examines its effect on firm performance. The dynamic panel model is used, and preestimation and postestimation tests were conducted for the validity of the model. This study found a significant effect of board size, CEO duality, and non‐executive directors on firm performance. The findings show that most of the governance variables are endogenous by nature. Results are consistent with agency theory. This study provides the theoretical and empirical evidence and applies a superior model (dynamic panel model) to better explain the association between corporate board structure and corporate firm performance in listed firms.

The influence of the chairman and CEO effectiveness on operating performance: Evidence from Malaysia

“…Corporate governance is an engine to design, manage and control the system of business through best practice mechanisms under the board of directors' management, led by the Chairman. It is recognized as the "ultimate driver" for the improvement of financial performance of the firm and business communities (Khan et al, 2019). Many studies have investigated the relationship between corporate governance and firm performance (e.g., Al-ahdal et al, 2020;Arora & Sharma, 2016;Brown & Caylor, 2004;Al Farooque et al, 2019;Fooladi & Nikzad Chaleshtori, 2011;Khan et al, 2019;Vo & Phan, 2013;Yasser et al, 2011).…”

“…It is recognized as the "ultimate driver" for the improvement of financial performance of the firm and business communities (Khan et al, 2019). Many studies have investigated the relationship between corporate governance and firm performance (e.g., Al-ahdal et al, 2020;Arora & Sharma, 2016;Brown & Caylor, 2004;Al Farooque et al, 2019;Fooladi & Nikzad Chaleshtori, 2011;Khan et al, 2019;Vo & Phan, 2013;Yasser et al, 2011). Ahmed and Hamdan (2015) in Bahrain indicate that there is significant relationship between corporate governance and financial performance (represented by ROE) and operating performance (represented by ROA).…”

“…The asset tangibility has a significantly negative relationship with firm performance (Afrifa & Tauringana, 2015). The firm age has negative significant relationship with firm performance (Khan et al, 2019). Financial leverage has a significant and negative relationship with firm performance (Chandren et al, 2020;Saleh et al, 2020).…”

“…The involvement of corporate governance has been found to be significant in achieving sound operating performance, represented by strong management discharging its duties effectively in a positive direction for the firm's and shareholders' benefit (Chandren et al, 2017). Examples of good governance include gender diversity, which strengthens the board's monitoring role and enhances the financial reporting quality (Ghaleb et al, 2021); and the positive and significant link between corporate governance and return on assets (ROA) and return on equity (ROE) (Brown & Caylor, 2009;Dony et al, 2019;Khan et al, 2019). The reliability of corporate governance, led by the Chairman and under him/her the Chief Executive Officer (CEO), is vital in achieving positive operating performance and ensuring stakeholders', particularly investors' confidence (Amran et al, 2014).…”

Board Structure and Firm Performance: Evidence from State Owned Enterprises in Kenya

“…This finding also in agreement with other previous studies (Saha & Kabra, 2019;Kalsie & Shrivastav, 2016;Fauzi & Locke, 2012. The results on the effect of board independence on firm performance established negative and significant effect on firm performance. This finding is not in consistent with agency theory perspective that predicts that independent boards will lead to improved monitoring function resulting to improved performance (Khan, Al-Jabri & Saif, 2019;Rashid, 2018). This mean that independent directors negatively influenced the performance of commercial and manufacturing SOEs in Kenya.…”