Managerial Auditing Journal 23, no. 8 (2008): 744-778

 

CORPORATE GOVERNANCE, TRANSPARENCY AND PERFORMANCE OF MALAYSIAN COMPANIES

Hassan Che Haat, Mohd, Rashidah Abdul Rahman, and Sakthi Mahenthiran


Abstract


The paper aims to examine the effect of good corporate governance practices on corporate transparency and performance of Malaysian listed companies. Samples were selected using matched‐sampling method and hierarchical regression was employed to test the relationship between among corporate governance mechanism, transparency and performance. Corporate governance factors have a strong predicting power on company performance, mainly due to debt monitoring and foreign ownership. However, there is a significant negative relation between audit quality and performance. The results find that performance is not associated with the level of disclosure and timely reporting. The results indicate that disclosure and timeliness are not significant contributing factors in the relationship between corporate governance and market performance. The data covers a one‐year period of 2002 only. This paper deals only with “one‐way” causality running from corporate governance mechanisms to performance, even though, there is evidence of “reverse‐way” and “two‐way” causality in governance literature. This paper indicates that internal governance mechanisms are not important determinants to corporate performance. However, governance in forms of debt monitoring and foreign ownership have significant influence on corporate performance. Transparency (i.e. disclosure and timeliness of reporting) is not a significant mediating variable between corporate governance and performance. Distinct from previous empirical research as the disclosure level is measured using self‐designed corporate governance index. Apart from a study conducted in an Asian setting of Malaysia, the study also tests transparency as a mediating variable between corporate governance and performance

Keywords: Corporate governance, Business performance, Shareholder value analysis, Malaysia