Keyword

Corporate board, firm value, diversification, Public listed companies.

Abstract

This study examines the relationship between corporate board and firm value of diversified companies listed on Bursa Malaysia. It applies a multiple regression analysis on data collected from annual reports of the companies for the year 2017. The corporate board variables considered are board size, tenure of independence directors and the existence of risk management committee, while the value of firm is measured based on excess value. The results reveal that there is a negative relationship between tenure of independent directors, board size with firm value, while risk management committee maintains significant positive relationship with firm value. The study is supportive of the view that enhanced corporate governance practices contributes towards increasing firm value. Generally, this study provides new/additional insights for policy makers or regulators in improving the corporate governance policies in the future and main help in increasing understanding on the relationship between corporate governance practices and firm’s value. 


Full Text : PDF

References
  1. Aebi, V., Sabato, G., & Schmid, M. (2012). Risk management, corporate governance, and bank performance in the financial crisis. Journal of Banking & Finance, 36(12), 3213-3226.
  2. Anderson, R., Mansi, S., & Reeb, D. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of Accounting and Economics, 37(3), 315–342.
  3. Anum Mohd Ghazali, N. (2010). Ownership structure, corporate governance and corporate performance in Malaysia. International Journal of Commerce and Management, 20(2), 109-119.
  4. Arora, A., & Sharma, C. (2016). Corporate governance and firm performance in developing countries: evidence from India. Corporate governance, 16(2), 420-436.
  5. Bai, G. (2013). How do board size and occupational background of directors influence social performance in for-profit and non-profit organizations? Journal of business ethics, 171-187.
  6. Berger, P., & Ofek, E. (1995). Diversification ’ s. Journal of Financial Economics, 37(1), 39–65.
  7. Byrd, J., Cooperman, E. S., & Wolfe, G. A. (2010). Director tenure and the compensation of bank CEOs. Managerial Finance, 36(2), 86-102.
  8. Chan, A. M. Y., Liu, G., & Sun, J. (2013). Independent audit committee members’ board tenure and audit fees. Accounting & Finance, 53(4), 1129-1147.
  9. Christensen, J., Kent, P., & Stewart, J. (2010). Corporate governance and company performance in Australia. Australian Accounting Review, 20(4), 372-386.
  10. Cummings, L., & Patel, C. (2009). Stakeholder literature review. In Managerial Attitudes of Stakeholder (pp. 17-51).
  11. Dikolli, S. S., Mayew, W. J., & Nanda, D. (2014). CEO tenure and the performance-turnover relation. Review of accounting studies, 19(1), 281-327.
  12. Denis, D., & McConnell, J. (2003). International corporate governance. Journal of Financial and, 38(1), 1–36.
  13. Erickson, J., Park, Y. W., Reising, J., & Shin, H. H. (2005). Board composition and firm value under concentrated ownership: the Canadian evidence. Pacific-Basin Finance Journal, 13(4), 387-410.
  14. Gates, S., Nicolas, J., & Walker, P. (2012). Enterprise risk management: Management Accounting, 13(3), 28–38.
  15. Germain, L., Galy, N., & Lee, W. (2014). Corporate governance reform in Malaysia: Board size, independence and monitoring. Journal of Economics and Business, 75, 126–162.
  16. Giroud, X., & Mueller, H. M. (2010). Does corporate governance matter in competitive industries?. Journal of Financial Economics, 95(3), 312-331.
  17. Gupta, K., Krishnamurti, C., & Tourani-Rad, A. (2013). Is corporate governance relevant during the financial crisis?. Journal of International Financial Markets, Institutions and Money, 85-110.
  18. Haniffa, R., & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal of Business Finance & Accounting, 33(7‐8), 1034-1062.
  19. Huang, S., & Hilary, G. (2018). Zombie board: board tenure and firm performance. Journal of Accounting Research.
  20. Hutchinson, M., & Gul, F. A. (2004). Investment opportunity set, corporate governance practices and firm performance. Journal of corporate finance, 10(4), 595-614.
  21. Ishak, Z., & Napier, C. (2006). Expropriation of minority interests and corporate diversification in Malaysia. Asian Academy of Management Journal of Accounting and Finance, 2(1), 85–113.
  22. Ishak, Z., & Abdul Manaf, N. A. (2013). Board of directors and corporate diversification in Malaysia. International Journal of Critical Accounting, 5(2), 123–142.
  23. Johnson, J., Daily, C., & Ellstrand, A. (1996a). Boards of directors: A review and research agenda. Journal of Management, 22(3), 409–438.
  24. Jensen, M., & Meckling, W. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
  25. John, K., & Senbet, L. (1998). Corporate governance and board effectiveness. Journal of Banking & Finance, 22, 371–403.
  26. Khan, A., Tanveer, T., & Malik, U. (2017). An empirical analysis of corporate governance and firm value: Evidence from KSE-100 Index. Accounting, 3(2), 119-130.
  27. Kim, K., Mauldin, E., & Patro, S. (2014). Outside directors and board advising and monitoring performance. Journal of Accounting and Economics, 57(2), 110-131.
  28. Lipton, M., & Lorsch, J. W. (1992). A modest proposal for improved corporate governance. The business lawyer, 59-77.
  29. McNutt, P., & Demidenko, E. (2010). The ethics of enterprise risk management as a key component of corporate governance. International Journal of, 37(10), 802–815.
  30. Michelberger, K. (2016). Corporate Governance Effects on Firm Performance: A Literature Review. Regional Formation and Development Studies, 20(3), 84-95.
  31. Mollah, S., Al Farooque, O., & Karim, W. (2012). Ownership structure, corporate governance and firm performance: Evidence from an African emerging market. Studies in Economics and Finance, 29(4), 301-319.
  32. Oh, C., Sohl, T., & Rugman, A. (2015). Regional and product diversification and the performance of retail multinationals. Journal of International Management, 21(3), 220–234.
  33. Ong, T. S., Soh, W. N., Teh, B. H., & Ng, S. H. (2015). Influence Of Environmental Disclosures On The Financial Performance Of Public Listed Malaysian Manufacturing Companies. Asia-Pacific Management Accounting Journal, 10(1), 107-140.
  34. Othman, Z., & Rahman, R. A. (2010). Ethics an Malaysian corporate governance practices. International Journal of Business and Social Science, 1(3), 98-109.
  35. Reguera-Alvarado, N., & Bravo, F. (2017). The effect of independent directors’ characteristics on firm performance: Tenure and multiple directorships. Research in International Business and Finance, 41, 590-599.
  36. Renders, A., Gaeremynck, A., & Sercu, P. (2010). Corporate‐governance ratings and company performance: a cross‐European study. Corporate Governance: An International Review, 87-106.
  37. Ruigrok, W., Peck, S., Tacheva, S., & Greve, P. (2006). The determinants and effects of board nomination committees. Journal of Management, 10(2), 119–148.
  38. Salina & Nazrul. (2015). Corporate Governance and Financial Performance : Empirical Evidence from Public Listed Construction Companies in Malaysia.
  39. Saravanan, P. (2012). Corporate governance and company performance: A study with reference to manufacturing firms in India.
  40. Shukla, D. M., & Dwivedi, N. (2016). Influence of Board of Directors on Corporate Diversification: Evidence from India. Strategic Change: Briefings in Entrepreneurial Finance, 25(1), 471–484.
  41. Srivastava, N. K. (2015). Does governance structure have any effect on firm performance during the financial crisis: evidence from selected Indian companies. Journal of Strategy and Management, 8(4), 368-383.
  42. Surya Bahadur GC. (2016). Corporate Governance and Firm Performance: Empirical Evidence from India. Journal of Business and Management Research, 1(2), 48-65.
  43. Tufano, P. (1996). Who manages risk? An empirical examination of risk management practices in the gold mining industry. The Journal of Finance, 51(4), 1097–1137.
  44. Vafeas, N. (2003). Length of board tenure and outside director independence. Journal of Business Finance & Accounting, 30.(7–8), 1043–1064.
  45. Vo, D., & Phan, T. (2013). Corporate governance and firm performance: empirical evidence from Vietnam. Journal of Economic Development, 7(1), 62–78.
  46. Wilson Jr., T. E. (2016). Director Tenure and Board Meeting Frequency. Southern Business & Economic Journal, 39(1), 51–65.
  47. Xie, Q. (2014). CEO tenure and ownership mode choice of Chinese firms: The moderating roles of managerial discretion. International Business Review, 23(5), 910–919.
  48. Yasser, Q., Entebang, H., & Mansor, S. (2015). Corporate governance and firm performance in Pakistan: The case of Karachi Stock Exchange (KSE)-30.
  49. Yatim, P. (2010). Board structures and the establishment of a risk management committee by Malaysian listed firms. Journal of Management & Governance, 14(1), 17–36.
  50. Zabri, S. M., Ahmad, K., & Wah, K. K. (2016). Corporate governance practices and firm performance: Evidence from top 100 public listed companies in Malaysia. Procedia Economics and Finance, 35, 287-296.
  51. Zhao, X., Hwang, B., & Low, S. (2013). Critical success factors for enterprise risk management in Chinese construction companies. Construction Management and, 31(12), 1199–1214.