Corporate Governance and Financial Distress: Malaysian Perspective

Article Sidebar

PDF
Published: Aug 31, 2018
DOI: https://doi.org/10.22452/AJAP.vol11no1.5
Keywords:
Financial Distress, Corporate Governance, Board of Directors, Malaysia

Main Article Content

Mazurina Mohd Ali
Senior Lecturer at the Faculty of Accountancy, Universiti Teknologi MARA Selangor, Puncak Alam Campus, 42300, Selangor, Malaysia. Email: mazurina@salam.uitm.edu.my
Noriza Mohd Nasir
Noriza Mohd Nasir is PhD scholar at the Faculty of Accountancy, UiTM Shah Alam, 40450 Shah Alam, Selangor, Malaysia. Email: Norizamcis@yahoo.com

Abstract

Research aim: The purpose of this study is to examine the relationship between corporate governance mechanisms – board of directors’ characteristics (board size, board activity, CEO duality, and board independence) – and financially distressed companies in Malaysia.


Design/ Methodology/ Approach: In order to gather the required data, the secondary data, which are the annual reports of all the selected companies, are obtained from Bursa Malaysia from years 2010 until 2016. Financially distressed companies are defined as those companies that are classified in the Bursa Malaysia Practice Note (PN17). The sample of companies comprises all sectors except banking and financing companies. Levene’s Test for Equality of Variances Analysis, Pearson Spearman’s Rho Correlations Analysis, and Binary Logistic Regression Analysis are used to analyse the collected data.


Research finding: This study provides evidence that board activity has a significant relationship with financially distressed companies.


Theoretical contribution/ Originality: This study is desired to improve corporate governance mechanisms among financially distressed companies and improve shareholders value.


Practitioner/ Policy implication: This study helps the shareholders, management, potential investors, and other stakeholders of public listed companies to understand how selected board of directors’ characteristics are associated with companies in a financial distress situation.


Research limitation/ Implication: The limitation of this research is the time-period of the study.


Keywords: Financial Distress, Corporate Governance, Board of Directors, Malaysia


Type of manuscript: Research paper


JEL Classification: M41, M49

Downloads

Download data is not yet available.

Article Details

Issue
Vol. 11 No. 1 (2018)
Section
Research Article

License
The Asian Journal of Accounting Perspectives (AJAP) articles are published under a licence equivalent to the Creative Commons Attribution-NonCommercial-NoDerivs License (CC BY-NC-ND). The licence allows users to copy, distribute, and transmit an article as long as the author is attributed. The article is not used for commercial purposes. The work is not modified or adapted in any way. 

Copyright
Authors are required to sign the Exclusive License to Publish agreement upon publication in the AJAP. The agreement grants the Publisher (Faculty of Business and Accountancy, Universiti Malaya) to publish and disseminate the articles. 

Open Access
Articles published in the AJAP are digital, online, free of charge, and free of most copyright and licensing restrictions. 

Article Processing Charge
Articles publish in AJAP is free submission, production and publication charges. However, all accepted articles are required for language editing. The AJAP officially appointed and outsourced proofreader will conduct this process, and the authors will cover the cost. AJAP does not profit from this process and transaction.

References

Abdullah, S. N. (2006). Board structure and ownership in Malaysia: The case of distressed listed companies. Corporate Governance, 6(5), 582–594.
Alabede, J. O. (2016). Effect of board diversity on corporate governance structure and operating performance : Evidence from the UK listed firms. Asian Journal of Accounting and Governance, 80, 67–80.
Alhaji, I. A., Baba, M. I., & Yusoff, W. F. W. (2013). The relationship between independent non executive directors’ and audit committee on firm performance among Malaysian listed companies. Proceeding Book of ICEFMO, 2013, Malaysia, 107–113.
Brédart, X. (2014). Financial distress and corporate governance : The impact of board configuration. International Business Research, 7(3), 72–81.
Brick, I. E., & Chidambaran, N. K. (2008). Board monitoring, firm risk, and external regulation. Journal of Regulatory Economics, 33(1), 87–116.
Bursa Malaysia. (2015). Practice Note 2017. Retrieved from http://customer.bursamalaysia.com
Carter, D. A., D’Souza, F., Simkins, B. J., & Simpson, W. G. (2010). The gender and ethnic diversity of US boards and board committees and firm financial performance. Corporate Governance, 18(5), 396–414.
Chen, H. (2014a). CEO duality and firm performance : An empirical study of EU listed firms. 3rdIBA Bachelor Thesis Conference, 1–10.
Chen, I. (2014b). Financial crisis and the dynamics of corporate governance: Evidence from Taiwan’s listed firms. International Review of Economics and Finance, 32, 3–28.
Coles, J. W., McWilliams, V. B., & Sen, N. (2001). An examination of the relationship of governance machanisms to performance. Journal of Management, 27(1), 23–50.
Core, J. E., Holthausen, R. W., & Larcker, D. F. (1999). Corporate governance, chief executive officer compensation, and firm performance. Journal of Financial Economics, 51(3), 371–406.
Coşkun, M., & Sayilir, Ö. (2012). Relationship between corporate governance and financial performance of Turkish companies. International Journal of Business and Social Science, 3(14), 59–64.
Editorial. (2003). Editorial Non-Executive Directors: key characteristics. Blackwell Publishing Ltd.
Elloumi, F., & Gueyié, J. (2001). Financial distress and corporate governance: An empirical analysis. Corporate Governance: The International Journal of Business in Society, 1(1), 15–23.
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control separation of ownership and control. Journal of Law and Economics, 26(2), 301–325.
Fich, E. M., & Slezak, S. L. (2008). Can corporate governance save distressed firms from bankruptcy? An empirical analysis. Review of Quantitative Finance and Accounting, 30(2), 225–251.
Hambrick, D. C., & D’Aveni, R. A. (1992). Top team deterioration as part of the downward spiral of large corporate bankruptcies. Management Science, 38(10), 1445–1466.
Ho, S. S., & Shun W, K. (2001). A study of the relationship between corporate governance structures and the extent of voluntary disclosure. Journal of International Accounting, Auditing and Taxation, 10(2), 139–156.
Hong-xia, L., Zong-jun, W., & Xiao-lan, D. (2008). Ownership, independent directors, agency costs and financial distress: Evidence from Chinese listed companies. Corporate Governance, 8(5), 622.
Jensen, M. C. (1993). The modern industrial revolution, exit, and the failure of internal control systems. The Journal of Finance, 48(3), 831–880.
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.
Lakshan, A. M. I., & Wijekoon, W. M. H. N. (2012). Corporate governance and corporate failure. Procedia Economics and Finance, 2(Af), 191–198.
Lamberto, A., & Rath, S. (2010). The survival of initial public offerings in Australia. International Journal of Business and Finance Research, 4(1), 93–111.
Lima, B.F. & Sanvicente, A.Z. (2013), Quality of corporate governance and cost of equity in Brazil, Journal of Applied Corporate Finance, 25(1), 72-80.
Manzaneque, M., Priego, A. M., & Merino, E. (2016). Corporate governance effect on financial distress likelihood: Evidence from Spain. Revista de Contabilidad, 19(1), 111–121.
Miglani, S., Ahmed, K., & Henry, D. (2015). Voluntary corporate governance structure and financial distress: Evidence from Australia. Journal of Contemporary Accounting and Economics, 11(1), 18–30.
O’Connell, V., & Cramer, N. (2010). The relationship between firm performance and board characteristics in Ireland. European Management Journal, 28(5), 387–399.
OECD. (n.d.). Corporate Governance and financial crisis. Retrieved from http://www.oecd.org
Sajid, G., Muhammad, S., Nasir, R., & Farman, A. (2012). Agency cost, corporate governance and ownership structure: The case of Pakistan. International Journal of Business and Social Sciences, 3(9), 268–277.
Securities Commission Malaysia. (2007). Malaysian Code on Corporate Governance.
Shahwan, T. M. (2015). The effects of corporate governance on performance and financial distress. Journal of Financial Regulation and Compliance, 20(2), 169–181.
Shukeri, S. N., Shin, O. W., & Shaari, M. S. (2012). Does board of director’s characteristics affect firm performance? Evidence from Malaysian public listed companies. International Business Research, 5(9), 120–127.
Simpson, W. G., & Gleason, A. E. (1999). Board structure, ownership, and financial distress in banking firms. International Review of Economics and Finance, 8(3), 281–292.
Tao, N. B., & Hutchinson, M. (2013). Corporate governance and risk management: The role of risk management and compensation committees. Journal of Contemporary Accounting and Economics, 9(1), 83–99.
Vafeas, N. (1999). Board meeting frequency and firm performance. Journal of Financial Economics, 53(1), 113–142.
Walsh, J., & Seward, J. (1990). On the efficiency of internal and external corporate cntrol mechanisms. Academy of Management Review, 15(3), 421–458.
Witteloostuijn, D. R. & A. Van. (2009). Board Independence, CEO Duality and Firm Performance A Quantile Regression Analysis for Indonesia, Malaysia, South Korea and Thailand. Demography (Vol. 13).
Wruck, K.H. (1990), Financial distress, reorganization, and organizational efficiency, Journal of Financial Economics, 27, 419-44.
Yusoff, W., & Alhaji, I. (2012). Corporate governance and firm performance of listed companies in Malaysia. Trends and Development in Management Studies, 1(1), 43–65.