CHAPTER 2: LITERATURE REVIEW
2.5 Independent Variables
2.5.1 Number of Board Sizes (BS)
For decades, researchers have investigated board structure like size, composition, independence, frequency of board meetings, and ownership structure Various studies have examined important board composition and size components to understand how these board features affect management and thereby effect performance. Board size is directly tied to corporate governance problems. Board sizes relate to an organization's total number of directors. Many corporate governance theories suggest the link between board size and company success. Both the agency and resource dependence theories favour a big board. However, stewardship theory recommends a smaller board size for better management. The board of directors, as representatives of the company's many owners and stakeholders, supervises and oversees the management' performance and activities.
A larger board contains more directors who monitor and manage the firm's performance in the best interests of the stakeholders. According to (Viet, 2013), had found that there a significant relationship between the board sizes and firm performance. (Kalsie & Shrivastav, 2016). This study had found that BS had positive relationship on board independence and firm performance (Kanakriyah, 2021)
H1A: Number of board sizes has a significantly relationship with firm performance (ROA).
H1B: Number of board sizes has a significantly relationship with firm performance (ROE).
H1C: Number of board sizes has a significantly relationship with firm performance (Tobin’s Q).
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2.5.2 Percentage of Independent Directors (%ID)
A study conducted by Fuzi, Halim, and M.K (2016) explored the role of board independence in monitoring and strategic duties. The ultimate aspect of board independence is having enough independent directors. Directors' talent, willingness, and board culture may lead to independence. Formal independence, information accessibility, incentives, and knowledge are all factors considered non-executive directors in China. Over-involvement of controlling shareholders and lack of knowledge of non-executive board roles in China. For example, the Malaysia Code of Corporate Governance requires at least three independent directors to monitor management (Fuzi, Halim, & M.K., 2016). They concluded that the independent directors' composition had nothing to do with earnings management. Although most Malaysian companies had 1/3 or 33% independent directors, this had little impact on earnings management Independent directors of Malaysian Government Linked Companies GLCs have failed in their internal monitoring duties (Fuzi, Halim, &
M.K., 2016). According to (Fernández-Temprano & Tejerina-Gaite, 2020), they had founded that percentage of independent directors has always shows positive coefficient with significant on ROA model.
H2A: Percentage of Independent Directors has a significantly relationship with firm performance (ROA).
H2B: Percentage of Independent Directors has a significantly relationship with firm performance (ROE).
H2C: Percentage of Independent Directors has a significantly relationship with firm performance (Tobin’s Q).
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2.5.4 Number of Women Directors (NOWD)
Gender equality in corporate boardrooms has been a hot subject in global corporate governance forums. Women in leadership positions were debated when Norway first introduced gender quotas on OSE-listed Norwegian firms in 2005. Since then, various governments have encouraged corporate boardroom gender diversity. In 2011, Malaysia became the first Asian country to impose a board gender quota. The board of directors influences a firm's strategic direction and disclosure decisions.
Any country's human capital is at least 50% female. Corporate boardrooms with female representation have access to a talent pool that women can contribute to.
People all throughout the globe are interested in environmental sustainability.
Various stakeholders have pushed businesses worldwide to incorporate environmental sustainability concepts into their daily operations. Investors no longer judge a company just on its financial performance, but also on its non- financial performance (Phua & Ho, 2017). According to (Jyothi & Mangalagiri, 2019) found that women directors had a positive relationship on board and firm performances. Another research by Conyon and He (2017) found that having women on boards improved performance because women had a more quantitative influence on organisations' profitability. (Bruna, ReyĐặng, Ammari, & Houanti, 2021)
H3A: Number of women directors has a significantly relationship with firm performance (ROA).
H3B: Number of women directors has a significantly relationship with firm performance (ROE).
H3C: Number of women directors has a significantly relationship with firm performance (Tobin’s Q).
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2.5.4 Number of Foreign Directors (NOFD)
Foreign members understand a firm's intended outside market techniques.
Consequently, such data may help the firm expand. Foreign directors also strengthen the board's independence. A restricted number of competent local directors, such as corporations in nations with a smaller population, low levels of education, and slower capital market expansion, relate to foreign directors.
International boards are viewed as a cost-effective way to transfer governance. The experiences of its foreign directors expose corporations to the corporate governance aspects and board processes of multinational firms (Alshirah, Rahman, & Mustapa, 2019). According to (Jusoh, Rashid, & Ajis, 2020) had found that there had positive relationship between foreign directors and firm performance. There is a positive and significant relationship between having foreign directors and how well a company does financially. (Assenga, Foreign Directors and Firm Financial Performance:
Evidence from the Tanzanian Listed Companies, 2021)
H4A: Number of Foreign Directors has a significantly relationship with firm performance (ROA).
H4B: Number of Foreign Directors has a significantly relationship with firm performance (ROE).
H4C: Number of Foreign Directors has a significantly relationship with firm performance (Tobin’s Q).
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2.5.5 Number of Foreign Qualifications (NOFQ)
A key component of MNCs' desire for global competitiveness, International Corporate Governance (ICG) captures this. To understand how corporate characters such as managers, owners, boards of directors, and employees, interact and influence the firm's strategic choices, ICG looks at their connections and interests.
A global business also distributes authority and rights among all stakeholders. ICG research investigates MNCs' transnational roles as issuers, carriers, interpreters, and disseminators of governance practises. In certain cases, foreign subsidiaries fully execute corporate governance rules set by their parent company, while others only partly or symbolically do so. It is also possible that the MNC's headquarters or other subsidiaries adopt one company's corporate governance practises (Aguilera &
Haxhi, 2019). In the case of Indonesia, it was determined that board members with foreign qualifications might improve the firm's financial performance (Darmadi, 2013).
H5A: Number of foreign qualifications has a significantly relationship with firm performance (ROA).
H5B: Number of foreign qualifications has a significantly relationship with firm performance (ROE).
H5C: Number of foreign qualifications has a significantly relationship with firm performance (Tobin’s Q).
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2.5.6 Number of Board Meetings (NOBM)
Board meetings are crucial to the board's supervisory role since they are held to discuss outstanding concerns and possible solutions. Defined as essential to successful government. Board meetings are crucial to the Board's tasks. According to the Agency Theory, regular board meetings may assist minimise agency costs and hence benefit corporations. It is easier to settle any urgent problem if the board meets often and is aware on the firm's activities (Al-Daoud, Saidin, & Abidin, 2016).
According to (Al-Daoud, Saidin, & Abidin, 2016), had indicate that board meeting is significantly and positively related to firm performance.
H6A: Number of board meeting has a significantly relationship with firm performance (ROA).
H6B: Number of board meeting has a significantly relationship with firm performance (ROE).
H6C: Number of board meeting has a significantly relationship with firm performance (Tobin’s Q).
2.5.7 Number of Foreign Directors in Audit Committee (NOFDAC)
Audit committee had been supervised all the internal and external audit, internal control, regulatory compliance, and risk management. The audit committee advises the board of directors on matters such as internal auditor independence and competence, financial statement accuracy, and executive compensation. An independent audit committee may be required by a regulator to improve financial reporting accuracy. Audit committees may get the expertise and resources they need to do their jobs (Al-Baidhani, 2014).
H7A: Number of foreign directors in audit committee has a significantly relationship with firm performance (ROA).
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H7B: Number of foreign directors in audit committee has a significantly relationship with firm performance (ROE).
H7C: Number of foreign directors in audit committee has a significantly relationship with firm performance (Tobin’s Q).