The Effects of External Monitors on Firm Performance and Corporate Governance Disclosure Level: Malaysian Evidence

By Rashidah Abdul Rahman and Moktar Mahamod.

Published by The Social Sciences Collection

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Article: Print $US10.00
Article: Electronic $US5.00

The current study aims to explore the potential moderating effects of the external monitors (institutional investors and board independence) on the relationship between firm performance and corporate governance disclosure level. The final sample consists of 95 public listed companies on Bursa Malaysia from year 2002 to 2005.

The results from the descriptive statistics reveal that the development of corporate governance practices in Malaysia is very low as the average of corporate governance disclosure level ranges from 50% in 2002 to 53% in 2005. This study found no empirical evidence supporting the hypotheses that firm performance, institutional shareholdings and board independence have significant relationship with corporate governance disclosure level. However, major institutional investors and effective board independence have moderating effects on the relationship between firm performance and corporate governance disclosure level. The result suggests that, the mere existence of major institutional investors itself (even with small percentage of shareholdings) and high proportions of independent non-executive directors, can influence the relationship between firm performance and corporate governance disclosure. In other words, major institutional investors not necessarily need to be the largest shareholders to take control over the company on behalf of minority shareholders. Even though institutional investors and high proportions of independent non-executive directors do not directly participate in monitoring the corporate governance disclosure practices, they still have an influence on management decision making processes for better firm performance towards better corporate governance disclosure. As such, the findings offer useful points of reference regarding the influences of external monitors to involve in decision making processes in corporate governance system.

Keywords: Corporate Governance, Institutional Investors, Independent Directors, Corporate Governance Disclosure

International Journal of Interdisciplinary Social Sciences, Volume 3, Issue 9, pp.173-184. Article: Print (Spiral Bound). Article: Electronic (PDF File; 538.094KB).

Rashidah Abdul Rahman

Professor, Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, Selangor, Malaysia

Rashidah Abdul Rahman, Ph.D, is a Professor at the Faculty of Accountancy, Universiti Teknologi MARA, Shah Alam, Malaysia. She is currently the Head of Corporate Governance Research Centre at the university. With research interest in corporate governance, intellectual capital, financial reporting, environmental reporting, and mergers and acquisitions, she has presented various articles in these areas at the local and international conferences. She has also published several papers in internationally refereed journals. She sits on the Editorial Board of National Accounting Research Journal and has reviewed articles for both local and international journals. She has published a book titled Effective Corporate Governance.

Moktar Mahamod

Lecturer, Faculty of Accountancy, Poly-Tech MARA College, Shah Alam, Selangor, Malaysia


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