The Relationship and Impact between Board of Director Criteria towards Firm Performance for Companies Listed on Bursa Malaysia: Trading and Services Sector

  • Noorul Farha Mohd Jumali Universiti Pendidikan Sultan Idris
  • Mohd Abdullah Jusoh Universiti Pendidikan Sultan Idris
  • Syed Ismail Syed Mohamad Universiti Pendidikan Sultan Idris
Keywords: Corporate governance mechanisms, Board of directors, Firm performance

Abstract

This research aims to investigate the relationship and impact between the board of directors criteria towards the company's performance. We hypothesized that the board of the directors criteria will increase the firm performance since board of the directors are viewed as one of the corporate governance mechanism that should be effective in monitoring and advice the management to protect the interest of shareholders. In this study, analysis of panel data has been used. The company's performance was measured by Return on Assets (ROA) and Tobin's Q. Using 159 listed firms in Trading and Services Sector from 2007 to 2013, our study exhibit that the size of the board of directors (BODSIZE) had significant and positive relationship on ROA and Tobin's Q. This shows when BODSIZE increases, the performance of the company will also increase. Next, CEO duality and independent board of directors (PERBODIND) had no significant relationship with ROA and Tobin's Q. Overall, good corporate governance is important to improve the company’s performance. The implication of this study is that it may affect various parties and include investors, financial institutions, academia, corporations, and governments in making judgments, decisions or improvements to corporate governance and company performance.

Downloads

Download data is not yet available.

References

Azeez, A.A. (2015). Corporate governance and firm performance: evidence from Sri Lanka. Journal of Finance and Bank Management, Vol. 3, No. 1, pp. 180-189.

Balasubramanian, N., Black, B.S., & Khanna, V. (2010). Firm level corporate governance in Emerging Markets:A case study of India.

Belkhir, M. (2004). Board structure, ownership structure and firm performance: evidence from banking. Applied Financial Economics, 19(19), 1581-1593.

Bliss, M. A. (2011). Does CEO duality constrain board independence? Some evidence from audit pricing. Accounting & Finance, 51(2), 361-380.

Brickley, J.A., Coles, J.L., & Jarrell, G. (1997). Leadership structure: Separating the CEO and chairman of the board. Journal of Corporate Finance, 3, 189-220.

Dedman, E., & Lin, S. (2002). Shareholder wealth effects of CEO departures: Evidence from the UK. Journal of Corporate Finance, 8, 81-104.

De Oliveira, G.E., Clemente, A., & Espejo, M.M.D.S.B. (2012). Composition of the board and firm value of Brazilian public companies. Brazilian Business Review, 9(3) 71-93.

Dharmadasa, P., Gamage, P., & Herath, S.K. (2014). Corporate governance, board characteristics and firm performance: evidence from Sri Lanka. South Asian Journal of Management, 21(1), 7.

Duc, H., & Tri, M.N. (2014). The impact of corporate governance on firm performance: empirical study in Vietnam. International Journal of Economics and Finance; Vol. 6, No. 6; 2014.

Ebrahim, M.A.M., Abdullah, K.A.S., & Faudziah H.F. (2014). The effect of board of directors characteristics, Audit committee characteristics and executive committee characteristics on firm performance in Oman: an empirical study. Asian Social Science; Vol. 10, No. 11; 2014.

Eeisenberg, T., Sundgren, S., & Wells, M. (1998). Larger board size and decreasing corporate firm value in small firms. Journal of Financial Economics, 48, 35-54.

Fauzi, F., & Locke, S. (2012). Board structure, ownership structure and firm performance: A study of New Zealand listed firm. Asian Academy of Management Journal of Accounting and Finance, 8(2), 43-67.

Fama, E.F., & Jensen, M.C. (1983). Separation of ownership and control. Journal of Law and Economics, 26, 327 349.

Filatotchev, I. & Bishop, K. (2002). Board composition, share ownership and underpricing of UK IPO firms’. Strategic Management Journal, 23, pp. 941–955.

Fitriya, F., & Stuart L. (2012). Board structure, ownership structure and firm performance: A study of New Zealand listed-firms. Asian Academy of Management Journal of Accounting and Finance, Vol. 8, No. 2, 43–67, 2012.

Forbes, D.P., & Milliken, F.J. (1999). Cognition and corporate governance: Understanding board of directors as strategic decision making groups. Academy of Management Review, 24, 489-505.

Hambrick, D.C., Werder, A.V., & Zajac, E.J. (2008). New directions in corporate governance research. Organization Science, 19(3), 381-385.

Jensen, M. (1993). The modern industrial revolution, exit and the failure of internal control systems. Journal of Finance, 48(4), 831–880.

Klein, A. (2002). Audit committee, board of director characteristics, and earnings management. Journal of Accounting and Economics, 33, 375-400.

Leung, S., Richardson, G., & Jaggi, B. (2014). Corporate board and board committee independence, firm performance, and family ownership concentration: An analysis based on Hong Kong firms. Journal of Contemporary Accounting & Economics, 10(1), 16-31. http://dx.doi.org/10.1016/j.jcae.2013.11.002

Levrau, A., & Van den Berghe, L.A.A. (2007). Corporate governance and board effectiveness: beyond formalism. The Icfai Journal of Corporate Governance, 6(4), 58-85.

Masood Fooladi Chaghadari. (2011). Corporate Governance and Firm Performance. 2011 International Conference on Sociality and Economics Development.

Masood Fooladi & Zaleha Abdul Shukor. (2012). Board of Directors, Audit Quality and fir performance: Evidence from Malaysia. National Research & Innovation conference for Graduate Students in Social Sciences (GSNRIC 2012).

Palanisamy, S. (2012). Corporate governance and company performance – A study with reference to manufacturing firms in India. Sponsored By NFCG Through CII Under Ministry of Corporate Affairs.

Pearce, J.A., & Zahra, S.A. (1992). Board composition from a strategic contingency perspective. Journal of Management Studies, 29, 411-438.

Rahmat, M.M., Iskandar, T.M., & Saleh, N.M. (2009). Audit committee characteristics in financially distressed and non-distressed companies. Managerial Auditing Journal, 24(7), 624–638.

Shafie Mohamed Zabri, Kamilah Ahmad dan Khaw, K.W. (2016). Corporate governance practices and firm performance: evidence from top 100 public listed companies in Malaysia. Procedia Economics and Finance 35 (2016) 287– 296.

Shleifer, A., & Vishny, R.W. (1997). A survey of corporate governance. Journal of Finance, Vol. LII No. 2.

Sulong, Z., & Fauzias, M.N. (2010). Corporate governance mechanisms and firm valuation in Malaysian listed firms: A panel data analysis. Journal of Modern Accounting and Auditing, 6(1), 1-18.

Ujunwa, A. (2012). Board characteristics and the financial performance of Nigerian quoted firms. Corporate Governance: The International Journal of Business in Society, 12(5), 656-674.

Weisbach, M., (1988). Outside directors and CEO turnover. Journal of Financial Economics, 20: 431 60.

Yatim, P., Kent, P., & Clarkson, P. (2006). Governance structures, ethnicity, and audit fees of Malaysian listed firms. Managerial Auditing Journal, 21(7), 757–782.

Published
2017-10-18
How to Cite
Mohd Jumali, N. F., Jusoh, M., & Syed Mohamad, S. I. (2017). The Relationship and Impact between Board of Director Criteria towards Firm Performance for Companies Listed on Bursa Malaysia: Trading and Services Sector. EDUCATUM Journal of Social Sciences, 3(1), 51-59. https://doi.org/10.37134/ejoss.vol3.1.6.2017

Most read articles by the same author(s)