The purpose of the research is to examine how board characteristics affect the financial performance of listed companies in Malaysia from 2011 to 2020. Therefore, 85 listed companies in Malaysia were selected for review in this research study.
INTRODUCTION
- Research Background
- Problem Statement
- Research Objective and Research Questions
- Significance of the Study
Therefore, this study aims to examine the relationship of elements of corporate governance characteristics to firm performance in the context of listed companies in Malaysia. This study provides the effectiveness of the relationship between corporate governance variables and firm performance in the context of listed companies in Malaysia.
LITERATURE REVIEW
Theoretical Model
- Agency Theory
- Stewardship Theory
- Resource Dependency Theory
- Stakeholder Theory
- Internalization Theory
The emphasis of the agency theory is that the owner or principal relationship with the agent in the business. However, the manager or directors of the company usually represent the agent (Fanta, Kemal & Waka, 2013).
Firm Performance
- Return on Asset (ROA)
- Return on Equity (ROE)
In contrast, in the measurement of ROE, net income plays an important role in determining the value of ROE. This is because the higher value of net income will produce a different result in ROE.
Board Characteristics
- Board Size
- Female directors
- Independent directors
- International experience in board of directors
- CEO duality
Nevertheless, Mak and Kusnadi (2005) say that the negative relationship between the board size and the company's performance is due to the communication problems. The reason for this practice is to encourage the female directors to participate in the top management of the company to make decisions. There are many studies that indicate that the independent directors are able to make decisions that will benefit the company.
According to the study by Wang (2014), the study found that there is no significant relationship between independent directors and company performance with the reasons that independent directors would in principle act as consultants to the company, which would not affect the company's performance. CEO duality indicates that the CEO of the company is also the president of the company. This shows that the company will perform poorly if there is duality of CEO in the company.
This result is also supported by the study of Guillet et al (2013), which found that CEO duality has a positive relationship with company performance.
Control Variable
- Company Size (CS)
On the other hand, according to study by Alqatan et al (2019), in which the study included 100 British non-financial companies from the year 2012 to 2015 to investigate the board structure's impact on firm performance, it found that there is a negative relationship between company size and company performance.
Research Framework
Development of Hypothesis
The second null hypothesis (H20) is that there is no significant relationship between female directors and company performance. The second alternative hypothesis (H21) is that there is a significant relationship between female directors and firm performance. The third null hypothesis (H30) is that there is a significant relationship between the number of independent directors and the company's performance.
The fourth null hypothesis (H10) is that there is a significant relationship between CEO international experience and firm performance. The fourth alternative hypothesis (H11) is that there is no significant relationship between CEO international experience and firm performance. The sixth null hypothesis (H60) is that there is no significant relationship between firm size and firm performance.
The sixth alternative hypothesis (H61) is that there is a significant relationship between company size and company performance.
Summary
RESEARCH METHODOLOGY
- Research Design
- Data Collection Method
- Target Sampling and Sampling
- Variable Definition
- Data Analysis
- Descriptive Analysis
- Panel Data Regression Models
- Summary
Data collection will be done according to the annual report, which is available on the official websites of the respective companies and the annual report that is published in Bursa Malaysia. The collected data will then be used to examine the impact of board characteristics on the financial performance of listed companies in Malaysia for the year 2011 to 2020. With the availability of the internet, secondary data collection will usually be suggested to was used for research purposes.
Therefore, in this research the data will be taken from the annual reports of the respective companies. Board Size The total number of directors on a company's board of directors. Percentage of directors with international experience on the board of directors in the company's annual report.
According to Loeb, Dynarski, McFarland, Morris, Reardon, and Reber (2017), descriptive analysis also provides information to summarize the data collected.
RESULTS
Descriptive Analysis
Malaysia is 15 and the minimum value of table size is 4, based on the entire selected sample. The maximum percentage of female directors is 89% and the minimum value of female directors is 0%. This shows that on average 50% of the board members are independent.
The minimum value of the proportion or percentage of independent directors is 0%, while the maximum value of the percentage of independent directors is 91%. Based on 0.92 of the mean, it shows that on average, 92% of listed companies in Malaysia are a dual CEO company. Therefore, the maximum value of CEO duality is 1 and the minimum value of CEO duality is 0, as based on Table 4.1.
Moreover, the maximum value of company size is RM181.43 billion and the minimum value of company size is RM0.06 billion.
Correlation Analysis
It indicates that the average company size of listed companies in Malaysia is RM14.68 billion. Based on Table 4.2, the result shows that ROA and ROE have a significant correlation with the value of 0.74 as ROA and ROE are the dependent variables used for measuring the profitability of the listed companies.
Regression Result
- Board Size and Company Performance
- Female Directors and Company Performance
- Independent Director and Company Performance
- International Experienced Directors and Company Performance
- CEO Duality and Firm Performance
- Company Size and Firm Performance
This result shows that there is a significant and positive relationship between company performance and independent directors. Therefore, the null hypothesis is not rejected, and the alternative hypothesis is rejected, in which it shows that there is a significant relationship between company performance and independent directors. This shows that increasing independent board directors by 1 will increase company performance by 2.86 for ROA and 0.92 for ROE.
Based on Table 4.3.3, CEO duality found that there is a significant and positive relationship with the company's performance from the ROE result, with a significant level at 10%. Therefore, the result shows that there is a significant and positive relationship between CEO duality and company performance. As a result, the null hypothesis is rejected and the alternative hypothesis is accepted, in which there is a significant relationship between CEO duality and company performance.
Based on Table 4.3.3, the result of this study, it is found that there is a negative and significant relationship between company size and company performance at significant level at 1% for both ROA and ROE.
Summary of Hypothesis Result
This result is contradicted by the study findings by Onofrei, Tudose, Durdureanu and Anton (2015), Marete (2015) and Olawale, Ilo and Lawal (2017) in which their findings indicated that there was no relationship between company size and performance of the firm. On the other hand, the value of the company size coefficient shows that ROA will decrease by 9.99 as the company size increases by 1, and ROE will decrease by 5.91 when there is an increase of 1 in the company size. In this study, the negative relationship between company size and firm performance indicates that the higher the company size or total assets, the lower the firm's performance.
Therefore, based on the research result, the null hypothesis is rejected and the alternative hypothesis is accepted, which is that there is a significant relationship between company size and firm performance.
Conclusion
This chapter includes a summary of the statistical analysis, discussion of the main findings, implication of the study, limitations of the study, recommendation, limitation and for future research, and conclusion.
Implication and recommendation
On the other hand, listed companies may increase the number of directors of international experience as there is a positive and significant relationship with company performance, if listed companies decide to increase company performance by increasing the number of directors of international experience, this will generate a positive effect on company performance. This is because the study also shows that increasing company board size is not significantly related to company performance. Therefore, the company is recommended to increase the number of the board by increasing the number of directors by evaluating directors with international experience and female directors, to increase the performance of the company, in accordance with the findings of this study.
According to MCCG 2017, Practice 4.5 states that the female directors must be understood to be at least thirty percent of the board. The study showed that the company's size has a negative and significant relationship with the company's performance. This will, due to the increase in fixed assets, have a slow generation of cash flow to the company and it will incur a higher maintenance fee for the company to maintain the company's fixed assets.
This is because the size of the company is measured by the total assets of the company.
Limitation and recommendation for Future Study
Furthermore, this study has a limited geographical area in which the study only focuses on Malaysian listed companies.
Conclusion
Governance Attributes and Business Performance: Evidence from New Zealand (Doctoral Dissertation, Auckland University of Technology). The relationship between board size, board composition, CEO duality, and firm performance: experience from Ghana (2005). CEO duality and firm performance in the US restaurant industry: moderating role of restaurant type.
The relationship between board size, board composition, CEO duality and firm performance: Experience from Ghana. The effect of multiple board positions and CEO characteristics on firm performance: evidence from Palestine. Board characteristics and firm performance: Evidence from the listed non-banking institutions in Bangladesh.
The gender gap in access to local finance and firm performance: evidence from a panel survey in Vietnam.
