Corporate governance reforms and shareholders’ confidence in emerging markets. A case of Malaysia

Pages60-74
Published date03 January 2017
DOIhttps://doi.org/10.1108/WJSTSD-09-2016-0054
Date03 January 2017
AuthorHaseeb-Ur- Rahman,Mohd. Yussoff Ibrahim,Ayoib Che Ahmad
Subject MatterPublic policy & environmental management,Environmental technology & innovation
Corporate governance
reforms and shareholders
confidence in emerging markets
A case of Malaysia
Haseeb-Ur- Rahman and Mohd. Yussoff Ibrahim
Universiti Teknologi Petronas, Bandar Seri Iskandar, Malaysia, and
Ayoib Che Ahmad
School of Accountancy, Universiti Utara Malaysia, Sintok, Malaysia
Abstract
Purpose The purpose of this paper is to investigate the relation of corporate governance (CG) attributes,
such as separate leadership (SL) structure, independent chair (IC) of the board, and the proportion of
independent directors on the board (Bind) recommended by the new Malaysian Code on Corporate
Governance (2012), with firmsmarket performance measured by share market price.
Design/methodology/approach The paper uses a randomly selected sample of 150 non-financial
Malaysian listed companies. To find the distinct impact of the code, the paper explicitly divides the sample
into two-year pre-context (2010-2011) and two-year post-context (2013-2014) of the code. Besides descriptive
statistics, the study also employs correlation and multiple regression estimators.
Findings By comparing the pre-context and post-context of the code, the study found that SL and Bind
have a significant positive relation while IC of the board has a significant negative relation with share market
price after enactment of the code.
Research limitations/implications The paper has a limitation of using only two years of data due to its
non-availability particularly after enactment of the code. The findings show that the new code slightly
improved compliance to the CG attributes investigated. Based on findings, the study also recommends further
improvement in compliance to CG codes and other voluntary regulations in Malaysia.
Originality/value Besides contributing to the limited and incongruent literature in pre-context and post-
context of CG regulations, the paper also provides important insights for regulators and policy makers of the
emerging markets like Malaysia.
Keywords Corporate governance, Malaysian Code on Corporate Governance 2012,
Non-financial Malaysian listed companies, Shareholdersconfidence
Paper type Research paper
Introduction
Agency theory assumes a conflict of interests between management and shareholders
( Jensen and Meckling, 1976). The theory assumes that management being an agent of the
shareholders is liable to protect their interests. However, due to individualism and
opportunism of managers as posited by agency theory, they tend to protect their own
instead of shareholdersinterests. In view of this, the theory assumes that independence of
the board which can be judged from its leadership structure and presence of independent
directors can better protect the interests of shareholders from the expropriation of the
management (Fama, 1980; Fama and Jensen, 1983; Jensen and Meckling, 1976; Jensen, 1993).
Accordingly, corporate governance (CG) codes and other regulations, which are mostly
based on agency theory, also have consistently been focusing on independence in structure
and composition of the board (La Porta et al., 2000). Recently, the issue of boards
independence was brought into the limelight of regulators and policy makers by the global
financial crisis of 2007-2008 that badly affected shareholdersconfidence around the world.
Subsequently, many countries such as the USA, the UK, Italy, and China and international
forums like United Nations Conference on Trade and Development and Organization for
World Journal of Science,
Technology and Sustainable
Development
Vol. 14 No. 1, 2017
pp. 60-74
© Emerald PublishingLimited
2042-5945
DOI 10.1108/WJSTSD-09-2016-0054
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/2042-5945.htm
60
WJSTSD
14,1

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