Shariah Compliant, Dividend Yield, MCCG, Corporate Governance and Independent directors.


The main purpose of this study is to examine the effects of implementation of Malaysian Code of Corporate Governance (MCCG) 2007 towards a public listed company’s performance in relation to a Shariah or non-Shariah compliant. The MCCG had become indispensable part of the Bursa Malaysia Listing Rules, which requires all listed companies to disclose the extent of compliance with it. The amended code of Corporate Governance emphasized several significant changes on the earlier code of MCCG 2000 which is made vital to safeguard the interests of all investors without violating the principles of Shariah. The study focuses on the 37 Malaysian PLCs excluding financial institutions for the period of 2000 to 2010. Statistical tests of Newey West T-Test and the R2 were used to determine whether there was enough evidence to reject a null hypothesis about the processes. The findings suggest that there is a significant relationship between governance attributes and financial performance in effect of the implementation of MCCG 2007 towards Shariah compliant company’s performance measured by dividend yield (DY). Comparatively, it was also found out that there is a significant inverse relationship between the number of independent directors towards a non-Shariah compliant company’s performance measured by earnings per share (EPS). This relationship denotes a 1% significant level which testifies that changes in the number of independent directors may influence the company’s EPS oppositely. The study also highlighted the importance for Malaysian PLCs to continuously practice good corporate governance regardless of Shariah compliant as it ensures the shareholders and potential investors a safety investment through the presence of independent directors.

Full Text : PDF

  1. Abdullah, S.N. (2006), “Board structure and ownership in Malaysia: The case of distressed listed companies”, Journal of Corporate Governance, Vol. 6 No. 5, pp. 582-594.
  2. Abidin, Z.Z., Kamal, N.M. and Jusoff, K. (2009), “Board structure and corporate performance in Malaysia”, International Journal of Economics and Finance, Vol. 1, pp. 150-164. 
  3. Agrawal, A. and Knoeber, C.R. (1996), “Firm performance and mechanisms to control agency problems between managers and shareholders”, Journal of Financial and Quantitative Analysis, Vol. 31, pp. 377-397.
  4. Al-Najjar, B. and Hussainey, K. (2009), “The association between dividend payout and outside directorships”, Journal of Applied Accounting Research, Vol. 10 No.1, pp. 4-19.
  5. Alves, C. and Mendes, V. (2002), “Corporate governance policy and company performance: the Portuguese case”, working paper, Centre de Estudos Macroeconomicos e Previsao (CEMPRE), Universidade do Porto, Portugal.
  6. Baltagi, B.H. (2001), Econometric Analysis of Panel Data (2nd ed.), John Wiley & Sons, Ltd., Chichester.
  7. Beasley, M.S. (1996), “An empirical analysis of the relation between the board of director composition and financial statement fraud”, Journal of The Accounting Review, pp. 443-465.
  8. Bergh, D.D. (1995), “Problems with repeated measures analysis: demonstration with a study of the diversification and performance relationship”, Journal of Academy of Management, Vol. 38 No. 6, pp. 1692–1708.
  9. Berle, A. and Means, G. (1932), The Modern Corporate and Private Property, MacMillan: Transaction Publishers, New York.
  10. Block, S. (1999), “The role of non affiliated outside directors in monitoring the firm and the effect on shareholder wealth”, Journal of Financial and Strategic Decisions, Vol. 12 No. 1.
  11. Bose, I. (2009), “Corporate governance and law-role of independent directors: theory and practice”, Journal of Social Responsibility, Vol. 5 No. 1, pp. 94-111.
  12. Bowen, H.P. and Wiersema, M.F. (1999), “Matching method to paradigm in strategy research: limitations of cross sectional analysis and some methodological alternatives”, Journal of Strategic Management, Vol. 20, pp. 625–636.
  13. Boyd, B.K. (1994), “Board control and CEO compensation”, Journal of Strategic Management, Vol. 15, pp. 335-344.
  14. Brown, L.D and Caylor, M.L. (2004), “The Correlation between Corporate Governance and Company Performance”, available at: 
  15. (accessed 17 July 2011).
  16. Brunarski, K., Harman, Y. and Kehr, J.B. (2004), “Agency costs and the dividend decision”, Journal of Corporate Ownership & Control, Vol. 1 No. 3.
  17. Byrd, J.W. and Hickman, K.A. (1992), “Do outside directors monitor managers?”, Journal of  Financial Economics, Vol. 32 No. 2, pp. 195-221.
  18. Chambers, A. (2005), “A teddy bear's picnic or the lion's ring? do non-executive directors add value?”, Journal of Measuring Business Excellence, Vol. 9 No. 1, pp. 23-34.
  19. Che Haat, M.H., Abdul Rahman, R., and Mahenthiran, S. (2008), “Corporate governance, transparency and performance of Malaysian companies”, Journal of Managerial Auditing, Vol. 23 No. 8, pp. 744-778. 
  20. Chhaochharia, V. and Grinstein, Y. (2004), “The transformation of U.S. corporate boards: 1997-2003”, available at: (accessed 17 July 2011).
  21. Choi, J.J., Park, S.W. and Yoo, S.S. (2007), “The value of outside directors: evidence from corporate governance reform in Korea”, Journal of Financial and Quantitative Analysis, Vol. 42 No. 4, pp. 941-962.
  22. Clifford, P. and Evans, R. (1997), “Non-executive directors: a question of independence”,  Journal of Corporate Governance, Vol. 5 No. 4, pp. 224-231.
  23. Conyon, M., Peck, S. and Sadler, G. (2000), “Econometric modeling if UK executive compensation”, Journal of Managerial Finance, Vol. 26 No. 9, pp. 3-20.
  24. Core, J.E., Holthausen, R.W. and Larcker, D.F. (1999), “Corporate governance, chief executive officer compensation, and firm performance”, Journal of Financial Economics, Vol. 51 No. 3, pp. 371-406.
  25. Dashew, L. (2009), “Importance of independent directors”, available at: 
  26. (accessed on 15 September 2010)
  27. Dechow, P., Sloan, R. and Sweeney, A. (1995), “Detecting earnings management”, Journal of The Accounting Review, Vol. 70, pp. 193-225.
  28. Drobetz, W., Schillhofer, A. and Zimmerman, H. (2003), “Corporate governance and expected stock returns: evidence from Germany”, working paper, University of Basel, October 2012. 
  29. Easterbrook, F. (1984), “Two agency cost explanations of dividends”, Journal of American Economic Review, Vol. 74, pp. 650-659.
  30. Fama, E.F. (1980), “Agency problems and the theory of the firm”, Journal of Political Economy, Vol. 88, pp. 288-307.
  31. Fama, E.F. and Jensen, M.C. (1983), “Agency problems and residual claims”, Journal of Law and Economics, Vol. 26 No. 2, pp. 327-349.
  32. Finance Committee on Corporate Governance (February 1999), “Report on corporate governance”, Malaysia: High Level Finance Committee on Corporate Governance, available at: 
  33. (accessed on 28 March 2011).
  34. Garay, U. and Gonzalez, M. (2008), “Corporate governance and firm value: the case of Venezuela”, Journal of Corporate Governance, Vol. 16 No. 3, pp. 194-209.
  35. Gemmill, G. and Thomas, D.C. (2004), “Does governance affect the performance of closed-end funds?”, working paper, EFMA 2004 Basel Meetings Paper, Cass Business School Research Paper, January 2004.
  36. Hermalin, B.E. and Weisbach, M.S. (2003), “Boards of directors as an endogenously determined institution:  a survey of the economic literature”, Journal of Economic Policy Review, Vol.  9 No. 1, pp. 7–26.
  37. Hsiao, C. (1985), “Benefits and limitation of panel data”, Journal of Econometric Reviews, Vol. 4, pp. 121-174.
  38. Hsiao, C. (1986), Analysis of Panel Data, Cambridge University Press, Cambridge. 
  39. Hutchinson, M. (2004), “Investment opportunity set, corporate governance practices and firm performance”, Journal of Corporate Finance, Vol. 10 No. 4, pp. 595-614.
  40. Jensen, M.C. and Meckling, W.H. (1976), “Theory of the firm: managerial behavior, agency costs and ownership structure”, Journal of Financial Economics, Vol. 3 No. 4, pp. 305-360.
  41. Johanson, D. and Ostergren, K. (2010), “The movement toward independent directors on boards: a comparative analysis of Sweden and the UK”, Journal of Corporate Governance: An International Review.
  42. Khan, K.I., Aamir, M., Qayyum, A., Nasir, A. and Khan, M.I. (2011), “Can dividend decisions affect the stock prices: a case of dividend paying companies of KSE”, International Research Journal of Finance and Economics, Vol. 76.
  43. Klein, A. (1998), “Firm performance and board committee structure”, Journal of Law and Economics, Vol. 41 No. 1, pp. 275-304.
  44. Klein, A. (2002), “Audit committee, board of director characteristics, and earnings management”, Journal of Accounting and Economics, Vol. 33, pp. 375-400.
  45. Klevmarken, N.A. (1989), “Panel studies: what can we learn from them?”, Introduction European Economic Review Journal, Vol. 33, pp. 375-377.
  46. Laksono, A.P. (2011), “Dilutive securities and earnings per share”, working paper, Fakultas Ekonomi, Universitas Sebelas Maret.
  47. Lawrence, J. and Stapledon, G. (1999), “Do independent directors add value?” A Research Report, Centre for Corporate Law and Securities Regulation, Melbourne, Australia.
  48. Lee, S.S. (2009), “Dividend policy”, Relevant to Paper II – PBE Management Accounting and Finance, The Chinese University of Hong Kong.
  49. Li, H.-x., Zong-jun, and Deng, X.-l. (2008), “Ownership, independent directors, agency costs and financial distress: evidence from chiniese listed companies”, Journal of Corporate Governance, Vol. 8 No. 5, pp. 622-636.
  50. Liang, N. and Li, J. (1999), “Board Structure and Firm Performance: New Evidence from China’s Private Firms”, paper presented at the Academy of Management Annual Conference, 7-10 August 1999, Chicago, USA, available at: 
  51. (accessed 25 July 2011).
  52. Lubatkin, M.H. and Chatterjee, S. (1991), “The strategy-shareholder value relationship: testing temporal stability across market cycles”, Journal of Strategic Management, Vol. 12 No. 4, pp. 251–270.
  53. Malaysian Code on Corporate Governance, March 2000. (2000), Finance Committee on Coprorate Governance, Kuala Lumpur, Malaysia: Securities Commission, available at: 
  54. (accessed 15 September 2010).
  55. Malaysian Code of Corporate Governance, revised 2007. (2007), Kuala Lumpur, Malaysia: Securities Commission, available at: (accessed 15 September 2010).
  56. Martani, D. and Saputra, Y.E. (2009), “The impact of corporate governance to the economic value listed company is BEI 2003-2004”, China-USA Business Review, Vol. 8 No. 3, pp. 26-40.
  57. Mat Nor, F. and Sulong, Z. (2007), “The interaction effect of ownership structure and board governance on dividends: evidence from Malaysian Listed Firms”, Capital Market Review, Vol. 15 No. 1/2, pp. 73-101.
  58. McCabe, M. and Nowak, M. (2008), “The independent director on the board of company directors”, Managerial Auditing, Vol. 23 No. 6, pp. 545-566.
  59. Mustapha, M. and Ahmad, A.C. (2011), “Agency theory and managerial ownership: evidence from Malaysia”, Managerial Auditing, Vol. 26 No. 5, pp. 419 - 436.
  60. Musteen, M., Datta, D.K. and Kemme, B. (2010), “Corporate reputation: do board characteristics matter?”, British Journal of Management, Vol. 21 No. 2, pp. 498-510.
  61. Othman, Thani and Ghani (2009), “Determinants of Islamic Social Reporting Among Top Shariah-Approved Companies in Bursa Malaysia”, Research Journal of International Studies, No. 12, pp. 1-20.
  62. Ponnu, C.H. (2008), “Corporate Governance Structures and the Performance of Malaysian Public Listed Companies”, International Review of Business Research Papers, Vol. 4 No. 2, pp. 217-230.
  63. Rosenstein, S. and Wyatt, J.G. (1990), “Outside directors, board independence, and shareholder wealth”, Financial Economics, Vol. 26, pp. 175-191.
  64. Rumelt, R.P. (1991), “How much does industry matter?”, Strategic Management, Vol. 12 No. 3, pp. 167–185.
  65. Sachs, J. (1998), “Symposium on global financial markets: the post-bubble Japanese economy and prospects for East Asia”, Alied Corporate Finance, Vol. 11, pp. 16-29.
  66. Selvaggi, M. and Upton, J. (2008), “Governance and performance in corporate Britain”, available at: (accessed 4 January 2011).
  67. Shleifer, A. and Vishny, R.W. (1997), “Survey of corporate governance”, Finance, Vol. 52 No. 2, pp. 737-783.
  68. Shukeri, S.N., Ong, W.S. and Shaari, M.S. (2012), “Does board of director’s characteristics affect firm performance? evidence from Malaysian Public Listed Companies”, International Business Research, Vol. 5 No. 9, pp. 120-127.
  69. Stein, G. and Plaza, S. (2011), “The role of the independent director in CEO supervision and turnover”, available at: (accessed 26 February 2011).
  70. Treadwell, D. (2006), “The role of the non-executive director: a personal view”, Corporate Governance, Vol. 6 No. 1, pp. 64-68.
  71. Uzun, H., Szewczyk, S.H. and Varma, R. (2004), “Board composition and corporate fraud”, Financial Analysts, pp. 33-43.
  72. Williams, S.M. (2000), “Relationship between board structure and a firm’s intellectual capital performance in an emerging economy”, working paper, University of Calgary, Calgary.
  73. Yermack, D. (1996), “Higher market valuation of companies with a small board of directors”, Journal of Financial Economics, Vol. 40, pp. 185-211.