Internatonal Journal of Economcs and Fnance February, 2010 Corporate Governance Complance and the Effects to Captal Structure n Malaysa Norza Mohd Saad Unverst Tenaga Nasonal, Kampus Sultan Haj Ahmad Shah, 26700 Bandar Muadzam Shah Tel: 60-9-455-3336 E-mal: norza@unten.edu.my Abstract Ths study attempts to nvestgate the complance level among publc lsted companes wth the mplementaton of corporate governance code of best practces and the assocaton to frm s captal structure n Malaysa. The data are gathered from the analyss of companes annual report and Thompson DataStream for a sample of 126 companes over a perod of 1998 to 2006. The study employs multple regresson analyses on board of drector s facets such dual leadershp, board sze and board meetng. The prelmnary results of ths study reveal most of the company has compled well wth the code and there s a sgnfcant assocaton to the frm s captal structure. Keywords: Corporate Governance, Dual Leadershp, Captal Structure, Board of Drectors Facets 1. Introducton The enforcement of Code of Best Practces by Malaysan Insttute of Corporate Governance (henceforth, MICG) to publc lsted companes n 2001 was an effectve measure n the wake of the md-1997 Asan crss. As one of major element of the corporate governance, Board of Drectors provdes addtonal provsons to the shareholders as well as other nvestors of the frms because t serves as an effectve montorng mechansm to reduce the agency conflct. It mposes more strngent montorng by shareholders by ncreasng nvolvement and the power of the Board of Drectors n the frm s decson makng. To the extent that corporate governance s not bndng, frms decson to adopt the Code of Best Practces must be supported by prudent justfcaton. In the Hgh Level Fnance Commttee Report on Corporate Governance (1999, p.10), corporate governance s defned as, the process and structure used to drect and manage the busness and affars of the company towards enhancng busness prosperty and corporate accountablty wth the ultmate objectve of realzng long-term shareholder value,. The defnton mples that nvestors of companes that adopt the Best Practces wll be able to enjoy hgher returns from ther nvestment. The recent surge of studes (Ba et. al. (2003); Bauer et. al. (2005); Black et. al. (2005); Chang 2005; Drobetz et. al. (2003); Gugler et. al. (2003); Nandelstandh & Rosenberg (2003); Wan & Ong (2005); Norza et. al (2007), Norza (2008) on the relatonshp between corporate complance and performance sgnal market (and publc) awareness about corporate governance such that frms no longer can gnore the mportance of and mplcaton of neglectng corporate governance. In other words, stock returns of non-complyng frms would suffer because market wll penalze the frms for decsons that do not allow them to realze greater value. Nonetheless, the facts that there are substantal varatons n corporate complance across frms wthn the same country (Mohamad Ishak et. al. (2004), Klapper and Love (2004) suggest that some frms are not yet convnced about the ncentve from adoptng the corporate governance. In attempt to fnd evdence that can convnce these non-complyng frms, ths study wll determne whether or not frms wth hgher level of corporate complance sgnfcantly perform better than those non-complyng frms. Consstent wth the ultmate objectve of corporate governance to realze long-term shareholder value, ths study uses debt to equty (D/E), debt rato (DR) and nterest coverage (IC) to measure captal structure of the company. Even though there are multple components n corporate governance, ths study emphaszes on Board of Drectors (BOD) because t s one (f not the only) of the most mportant mechansms of corporate governance. As part of ts lstng requrement, Bursa Malaysa requres publc lsted company to comply wth and dsclose n ther annual reports certan areas concernng BOD ncludng the board composton, board sze, board meetng and dual leadershp. The extent that all drectors are requred to undergo a Mandatory Accredtaton Programme (MAP) whch to be followed up by annual Contnung Educaton Programme (CEP) for nstance, asserts the polcymakers belef that BOD s an effectve vehcle of corporate governance. As the elected representatves of the frm shareholders, drectors serve as the prmary overseers n the company, montorng management to ensure that ts decsons s always (Note 2) endeavorng to maxmze corporate value n the long term for the shareholders, and (Note 3) prepared to be accountable for ts actons to all the stakeholders and n partcular to the shareholders (Corporate Governance Commttee, 1997). 105
Vol. 2, No. 1 Internatonal Journal of Economcs and Fnance Wth economes become ncreasngly global, companes especally those n the emergng captal markets are under constant pressure to mprove ther corporate governance nfrastructure n order to compete effcently wth ther compettors for external captal n the global equty market. The remander of the study s structured as follows. Secton 2 revews the exstng lterature on corporate governance complance and frm s captal structure. Secton 3 descrbes the data and methodology. Secton 4 presents the fndngs and dscusson on the results whle, secton 5 concludes and recommendatons to the company. 2. Overvew of Lterature 2.1 Defnton of Corporate Governance The Malaysan Hgh Level Fnance Commttee (1999, p. 10) defnes corporate governance as the process and structure used to drect and manage the busness affars of the company towards enhancng busness prosperty and corporate accountablty wth the ultmate objectve of realzng long-term shareholder value whlst takng nto account the nterest of other stakeholders. Accordng to Mathesen (2002), corporate governance s a feld n economcs that nvestgates how to secure or motvate effcent management of corporatons by the use of ncentve mechansms, such as contracts, organzatonal desgns and legslaton. Ths s often lmted to the queston of mprovng fnancal performance, for example, how the corporate owners can secure/motvate that the corporate managers wll delver a compettve rate of return. In the precedng study made by Cornelus (2005), n the broadest sense, corporate governance can be defned as the stewardshp responsblty of corporate drectors to provde oversght for the goals and strateges of a company and to foster ther mplementaton. Corporate governance may thus be perceved as the set of nterlockng rules by whch corporatons, shareholders and management govern ther behavor. These rules refer to ndvdual frm attrbutes and the factors that allow companes to mantan sound governance practces even where publc nsttutons are relatvely weak. Such factors may nclude a corporaton s ownershp structure, ts relatonshps wth stakeholders, fnancal transparency and nformaton dsclosure practces as well as the confguraton of ts managng boards. Another defnton that can be nclude n ths lterature that made by Cornelus & Kogut (2003), a system of corporate governance conssts of those formal and nformal nsttutons, laws, values, and rules that generate the menu of legal and organzatonal forms avalable n a country and whch n turn determne the dstrbuton of power on how ownershp s assgned, manageral decsons are made and montored, nformaton s audted and released, and profts and benefts allocated and dstrbuted. Mllsten (1998) descrbes corporate governance as the relatonshp between managers, drectors and shareholders. Ths constrcted defnton encompasses also the relatonshp of the corporaton to stakeholders and socety. Whereas n the broader verson of her defnton, corporate governance encompasses the combnaton of laws, regulatons, lstng rules and voluntary prvate sector practces that enable the corporaton to attract captal, perform effcently, generate proft and meet both legal oblgatons as well as the expectatons of socety generally. Furthermore she states that, no matter what the defnton, bascally corporate governance concerns the means by whch a corporaton assures nvestors that t has n place well performng management who ensure that corporate assets provded by nvestors are beng put to approprate and proftable use. 2.2 Corporate Governance Complance and Frm s Captal Structure Through a survey on annual reports of 556 publc lsted companes n Bursa Malaysa, formerly known as Kuala Lumpur Stock Exchange, n 2002, Mohamad Ibrahm et. al (2004) found the level of corporate complance to the Code of Best Practce n these frms s very hgh. Furthermore, the level of corporate complance s consstently hgh for all corporate governance mechansms or practces concernng BOD that nclude: () BOD composton; () BOD responsbltes.e. dvson of power between the Charman and the CEO; () BOD meetng; (v) board commttees; (v) remuneraton of drectors; and (v) BOD tranng. Ther fndng s consstent wth the score of Governance (GOV) ndex ntroduced by Klapper & Love (2004). In ther study nvolvng 13 other emergng countres, Malaysa s mean score (54.44) n the Index puts t at the sxth place after South Afrca (66.53), Sngapore (65.34), Chle (61.63), Hong Kong (58.27), and Brazl (57.26). Focusng the scope to Pacfc Basn countres, the results suggest that Malaysa has performed well relatve to the other countres n the regon because the results also mply that Malaysa stands at the thrd place after Hong Kong and Sngapore. Ths s besde the fact that n term of economc development, those countres are more establshed and advanced than Malaysa. As ponted out by Pass, C. (2006), the revsed Combned Code ntroduced new provsons relatng to the status and roles of the charperson and chef executve and the composton of the Board of Drectors and ts man Commttees. These new provsons were especally concerned to provde greater empowerment of a company s non-executve drectors n top-level decson makng, wth a partcular emphass on non-executves beng ndependent accordng to crtera specfed n the Code. The new Code requres companes to comply wth the provsons of the Code takng approprate acton whenever possble to secure complance or explan why they have not compled. The Code thus contnues the UK tradton of voluntary complance rather 106
Internatonal Journal of Economcs and Fnance February, 2010 than legal enforcement. Any enforcement s left to the dscreton of shareholders who f they are unhappy wth an explanaton can reject t at the AGM. There are many studes conducted on corporate governance and frm s performance, but lmted study focus on captal structure. In theory, fnancng n captal structure by company s based on the board of drector s decson. In complance to corporate governance code of best practces, BOD serves a good fnancng decson to the company. Accordng to Abor J. (2007) n hs study on corporate governance affect the captal structure was found that s a sgnfcantly negatve relatonshp between board sze and captal structure and opposte fndng on the assocaton between CEO dualty and leverage where t mples that larger boards adopt low debt polcy and CEO as the board charman tend to employ hgh proporton of debt. Smlar fndngs done by Pfeffer & Salancck (1978), Lpton & Lorsch (1992), Berger et al (1997) and Wen et al (2002) on the relatonshp between corporate governance and captal structure was come out wth the decson of corporate governance nfluenced the captal structure decson of frms. However, contradct wth Jensen (1986) where, hgh leverage or debt rato because of larger boards. A study done by Zong-Jun (2006), usng a sample of nnety-sx fnancally dstressed companes and 96 healthy companes fnd that large shareholder ownershp, state ownershp, and the proporton of ndependent drectors are negatvely assocated wth the probablty of dstress. Addtonally, manageral agency costs are badly detrmental to a company s fnancal status. However, the degree of balanced ownershp, manageral ownershp, board sze, and CEO dualty do not sgnfcantly affect the probablty of default. Furthermore, they test the nfluence of state-controllng rght by sub-groupng the sample nto state-controlled and non state-controlled companes. The results ndcate that corporate-governance attrbutes act dfferently on the status of fnancal dstress between the two sub-samples. The evdence on the ultmate effect of corporate governance complance to hgh level of debt by company s mxed. For nstance, Abor J. & Bekpe N. (2008) tested on small and medum enterprses (SMEs) ndcate that s postve relatonshps between captal structure and board composton, board sklls and CEO dualty and the result mply that SMEs pursue lower debt polcy wth larger board sze. Another key result that should b e hghlght s SMEs wth hgher percentage of outsde drectors, hghly qualfed board members and one-ter board system rather employ more debt. Fama & Jensen (1983) found CEO dualty also nfluences the fnancng decson of the frm but the relatonshp s not statstcally sgnfcant. Another study by Wen.Y, Rwegasra, K. & Blderbeek,J. (2002) on corporate governance and captal structure decsons of the Chnese lsted frms found that manager tend to pursue lower fnancal leverage when they face stronger corporate governance from the board. However, ther fndng only shows a sgnfcant value of board composton and CEO tenure and nsgnfcant results for board sze and fxed CEO compensaton. 3. Research Methodology 3.1 Operatonal Defnton of Facets of BOD based on Malaysan Code on Corporate Governance (MCCG) and Captal Structure 3.1.1 Dual Leadershp (DL), Board Sze (BS) and Board meetng (BM) In the MCCG, t was stated that under DL, there should be a clearly accepted dvson of responsbltes at the head of company, whch wll ensure a balance of power and authorty, such that no one ndvdual has unfettered powers of dvson. Where the roles are combned there should be a strong ndependent element on the board. A decson to combne the roles of charman and CEO should be publcly explaned n the companes annual report. In ths study, t was ndcated 1 for the combned poston of CEO and charman and 2 for separated. In terms of BS, every board should examne ts sze, wth a vew to determnng the mpact of the number upon ts effectveness. MCCG also stated that the board should meet regularly, wth due notce of ssues to be dscussed and should record ts conclusons n dschargng ts dutes and responsbltes. Data on board sze was collected based on the rankng; 1 f number of BOD s less than 5 persons, 2 for 6-10 of BOD, 3 for 11-15 of BOD, 4 for more than 15 BOD and 5 f the company do not dsclose the nformaton n the annual report. The board should dsclose the number of BM held a year and the detals of attendance of each ndvdual drector n respect of meetngs held. From such dsclosure, the study was developed a rankng as same as appled to board sze for the board meetng. 3.1.2 Captal Structure In fnance, captal structure refers to the way a corporaton fnances ts assets through some combnaton of equty, debt, or hybrd securtes. In ths study, captal structure refers to debt rato, debt to equty and nterest coverage. 3.2 Determnants of varables There are two man varables n ths study, dependent and explanatory, and the proxes that represent the dependent varables are () Debt Rato (DR), () Debt to Equty (D/E) and () Interest Coverage (IC) and explanatory varables are () Dual Leadershp, () Board Sze and () Board Meetng. To examne the frm s captal structure, ths study used the followng equatons; 107
Vol. 2, No. 1 Internatonal Journal of Economcs and Fnance TL DR TA TD D / E TE EBIT IC InterestExpenses Where TL = Total labltes of the th company for each year, TA = Total assets of the th company for each year, TE = Total shareholder s equty of the th company for each year, TD = Total Debt of the th company for each year, and EBIT = Earnngs before nterest and taxes of the th company for each year. InterestEx penses = Interest Expenses of the th company for each year. Next, the relatonshp between the BOD facets and frms captal structure wll be estmated usng the followng regresson equatons: Where = the constant term, DR ) = the slope or coeffcent estmates of the explanatory varables, DL = the BOD hold two poston of the th company, BS = the BOD sze of the th company, BM = the BOD meetng of the th company, = the standard error of the th company, DR = the debt rato of the th company, D / E = the debt to equty of the th company, and IC = the nterest coverage of the th company. 3.3 Samplng and Data Collecton D ( DL ) ( BS ) ( BM (1) 1 1 2 2 3 3 / E ( DL1 ) 2( BS2) 3( BM 3 1 ) (2) IC 1 ( DL1 ) 2( BS2) 3( BM 3) (3) The sample of 126 companes had been randomly selected consst of four ndustres; () consumer products, () ndustral products, () tradng/servces, and (v) plantatons of publc-lsted companes n the Man Board of the Bursa Malaysa for a nne conservatve years perod from 1998 to 2006. Fnancal nsttutons are excluded because they are governed by specal rules. The data before that perod consttutes the pre-mplementaton of corporate governance (pre-icg) cover year 1998 to 2000, the data between the frst mplementaton and the aforementoned perod consttutes the md-corporate governance perod (md-icg) cover year 2001 to 2003 and the followng data on 2004 to 2006 consttutes the post- mplementaton of corporate governance (post-icg). For the purpose of collectng nformaton on the BOD, ths study wll use the companes annual reports. Annual reports are suffcent for gatherng such data consderng lsted companes must abde to Securtes Exchange Commsson s requrement of such dsclosure. Thompson s DataStream was used to employ the data on frm s captal structure. 3.4 Hypothess The null hypothess of the study s developed to cater for the poolng regresson model. The null hypothess s: H 0 : There s no relatonshp between captal structure and BOD facets. H 1 : There s a relatonshp between captal structure and BOD facets. 4. Dscusson on Emprcal Results 4.1 Analyss of Corporate Governance Complance among BOD Facets durng Pre, Md and Post Implementaton of Corporate Governance Code of Best Practces n Malaysa Accordng to Malaysa Code on Corporate Governance (2000), t was stated that f one person hold dual leadershp (as a charman and CEO), they should dsclose all the responsbltes and descrptve job between the charman and the CEO. 108
Internatonal Journal of Economcs and Fnance February, 2010 It s also vsbly stated that there should be a clearly accepted dvson of responsbltes at the head of the company, whch wll ensure a balance of power and authorty, such that no one ndvdual has unfettered powers of decson. Where the roles are combned there should be a strong ndependent element on the board. A decson to combne the roles of Charman and Chef Executve should be publcly explaned. As we can see from fgure 1 (see appendx), most companes n Malaysa dd not combne the role of charman and CEO of the board of drector. It been prove by the result of ths study that show more than 70% of overall companes for the pre-icg and more than 80% for the md-icg and post-icg has two dfferent person that hold the poston of charman and CEO. Only a few of companes apply RD that results are only 10.6% (pre-icg), 6.9% (md-icg) and 12.4% (post-icg). Hence, before the code of practce s ntroduced, the board of drector already separates the role between the two. Accordng to research done by Shamsul Nahar Abdullah (2004), the role of the board s lkely to be mnmal as one person s controllng both the operatons (as a CEO) and the nternal montorng (as a board charman). Thus, the leadershp and control responsbltes le n the hands of one ndvdual. Agan, accordng to MCCG (2000), t was stated that every board should examne ts sze, wth a vew to determnng the mpact of the number upon ts effectveness. See appendx for fgure 2, most of the companes assgn 6 to 10 board of drectors to lead the companes durng md-icg and post-icg wth 56.3 percent and 79.5 percent respectvely. Only 1.9 percent, 3.7 percent and 1.3 percent of the companes that assgn more than 16 persons of the board sze durng pre, md and post respectvely. As for the study perod, a total of 31.9 percent of the companes ddn t dsclose ther number of drectors. Some pont of vew sayng that corporate performance wll be better f there s a larger board because they have a range of expertse to help make better decson. However, Jensen (1986) and Lpton & Lorsch (1992) argue that large boards are less effectve and are easer for the CEO to control. When a board gets too bg, t becomes dffcult to co-ordnate and process problems. Smaller boards also reduce the possblty of free rdng by, and ncrease the accountablty of, ndvdual drectors. The corporate governance practces suggested that the board of drector should meet regularly, wth due notce of ssues to be dscussed and should record ts concluson n dschargng t dutes and responsbltes. The practce also suggested that detals of attendance of the drectors are revealed n annual report durng the fnancal year to make sure the drectors are commtted to be part of the company. In the study, t was found that majorty of the companes compled very well wth the practce after the corporate governance was mplemented compared to before the code was ntroduced. As shown n fgure 3 (see appendx), for the pre-icg ndcated that 43.7 percent of the companes are not concern to dsclose ther number of board meetng n ther annual report. However, after ths code of conduct been ntroduced, we can see the trend s changng. Most of the companes startng to compled wth the code for the md-icg (96.8 percent) and post-icg (98.9 percent). Most of the company was conducted a meetng wth n a range of 6 to 10 tmes a year, for md-icg (61.9 percent) and post-icg (71.1 percent). 4.2 Analyss of the Relatonshp between BOD Facets wth the Frm s Captal Structure Table 1 (see appendx) shows the result for the multple regressons for all varables nvolved n the study. From the result we can see from panel A for the pre-icg, there are only DE have a relatonshp wth the BOD facets such as DL (-2.069) and BS (2.556) at 5 percent sgnfcant level. Therefore, we do not accept the null hypothess of H 0 and accept H 1 at ths level. For the Md-CG n panel B, where the corporate governance code beng ntroduced, there s a relatonshp between DL and IC at the p value of 0.05 and t-rato of -1.976. Another BOD facet that has a relatonshp s between BS and DE at the p value of 0.05 and t-rato of 2.136. We can accept H 1 and do not accept H 0 because t shows that there s a relatonshp between varables. As some authors suggested, the effects of these two factors on frm performance can be both postve and negatve (Fnkelsten, D Aven 1994), whch helps to explan why ths study found no sgnfcant effect of the two factors on frm performance. As for Post-CG n panel C, t shows that the entre three BOD facets have a relatonshp wth the captal structure of the companes such as DL wth DR (2.148) and DE (3.106) at 5 percent and 1 percent respectvely. IC also has an assocaton wth BS (5.045) and BM (-2.219) at 1 percent and 5 percent respectvely. Therefore, we can accept H 1 and do not accept H 0 at ths level. As ponted out by Keun Lee (2002) that revewed the post-crss reform of corporate governance system n Korea from the pont of vew of the condtons for effcent governance, the Korean system can be sad to have been mprovng although several ssues stll remans to be settled. The results n the table 2 (see appendx) shows that the standard devaton for the DR durng pre-icg (panel A) and post-icg (panel C) ndcate the hghest 746.91 and 313.99 whle the lowest s for DE are 40.78 and 68.59 respectvely. However, for md-icg (panel B) ndcates dfference result where the hghest s IC (2908.28) and the lowest s DE (36.73). In terms of correlatons, the sgnfcance level at 5 percent for the pre-icg only on BS wth IC at 0.118 and BS wth DL at 0.105. For md-icg, the correlaton exsted between DE and DR at 1 percent (0.256) and BS and DE at 5 percent (0.105). The mprovement of sgnfcant level for post-icg where RD are correlated wth DR at 5 percent (0.106) and DL wth IC (0.160) and BS wth IC (0.247) at 1 percent respectvely. 109
Vol. 2, No. 1 Internatonal Journal of Economcs and Fnance 5. Concluson and Recommendaton In ths study, t can be concluded that majorty of the companes lsted n Bursa Malaysa have compled very well wth the code n corporate governance practces. As we can see n the statstcs n secton four, t proved that the companes have dsclosed ther number of board meetng conducted n annual report especally durng md-icg and post-icg. In addton, t was also found that majorty of the companes have 6 to 10 drectors whch are consstent wth the recommendaton by Lpton & Lorcsh (1992) who argued that the preferred board sze s 8 or 9 wth 10 beng the lmt n order for a board to be effectve. In terms of dual leadershp, t was proven by ths study that the complance level to the MCCG s hgh where a decson to combne the roles of charman and CEO should be publcly explan n ther annual report. Ths study also found evdence ndcatng that there s a relatonshp between corporate governance and the frm s captal structure and at the same tme there s evdence to show that there are no relatonshps between the varables. For the pre-icg, there s no relatonshp between BOD facets and frm s DR and IC. It was also found that there s a relatonshp between the varables (for md-icg and post-icg) despte the fact that the relatonshp was not a strong relatonshp as the value of R s below 60%, consstent wth suggeston made by Gompers et al. (2003). For the recommendatons, the study has found that stll have a several companes dd not dsclose ther number of drectors and number of board meetng n ther annual report should comply wth the MCCG. The study also beleve that for future research, more sample should be used. Lastly, for companes that dd not comply wth the code of corporate governance they should follow the footsteps of the company that comply wth the practce. Ths s because n ths study, t was found that the corporate governance had a relatonshp wth the company s captal structure. When companes have good governance system, they wll attract nvestors to nvest n ther company. These companes n turn can compete n the busness that they are nvolved n because of suffcent captal and resources. It s hghly recommended for companes to comply wth the code because ths would gve nvestor confdence n the company. References Abor J. (2007). Corporate Governance and Fnancng Decsons of Ghanaan Lsted Frms, Corporate Governance: Internatonal Journal of Busness n Socety, 7, Forthcomng. Ba, Lu, Lu, Song. & Zhang. (2003). Corporate Governance and Market Valuaton n Chna, Wllam Davdson Workng Paper (564) Bauer, Günster, & Otten. (2005). Emprcal Evdence on Corporate Governance n Europe: The Effect on Stock Returns, Frm Value and Performance, Journal of Asset Management (forthcomng) Black, Jang, & Km. (2005). Does Corporate Governance Predct Frm s Market Values? Evdence from Korea, Workng paper N 86/2005, (onlne) Avalable: http://ssrn.com/abstract=311275 Bauer, R., Guenster, N. & Otten, R. (2004). Emprcal Evdence on Corporate Governance n Europe - The Effect on Stock returns, Frm Value and Performance. Journal of Asset Management, Vol. 5(2), pp91-104. Berger P.G, Ofek E. & Reeb D. (1997). Manageral Entrenchment and Captal Structure Decsons, Journal of Fnance, 52(4) pp.1411-1438. Chang. (2005). An Emprcal Study of Corporate Governance and Corporate Performance, The Journal of Amercan Academy of Busness, Cambrdge, pp95-101. Corporate Governance Commttee. (1997). Corporate Governance Prncples: A Japanese Vew (Interm Report). (onlne) Avalable: http://www.ssrn.com/ Drobetz, Schllhofer, & Zmmermann. (2003). Corporate Governance and Expected Stock Returns: Evdence from Germany, WWZ/Department of Fnance, Workng Paper No.2/03 Fama, E. & Jensen, M. (1983). Separaton of Ownershp and Control, Journal of Law and Economcs, 26(2), pp301-325. Fnance Commttee on Corporate Governance. (March 2002). Malaysan Code on Corporate Governance, (onlne) Avalable: http://www.sc.com.my Jensen, M. (1986). Agency Costs of Free Cash Flow, Corporate Fnance and Takeovers, Amercan Economc Revew, 76, pp323-329. Klapper & Love. (2004). Corporate Governance, Investor Protecton and Performance n Emergng Markets, Journal of Corporate Fnance, Vol 10(5), pp703-728. Lee, K. (2002). Lnkng Corporate Governance to Frm Behavor and Performance: The Case of Korean Chaebols Vewed as a Leveraged CMS Frm. School of Economes, Vol. 28(10), pp19-32. L, J., Qan, G. & Fang, Y. (2006). The Effects of Insttutonal Ownershp on Corporate Governance and Performance: An Emprcal Assessment n Hong Kong. Management Internatonal Revew, Vol. 46(3), pp259-276. 110
Internatonal Journal of Economcs and Fnance February, 2010 Lpton M. & Lorsch J.W. (1992). A Modest Proposal for Improved Corporate Governance, The Busness Lawyer 48, No.1 (November 1992). Mardjono, A. (2005). A Tale of Corporate Governance. Manageral Audtng Journal, Vol. 20, pp272-283. Mohamad Ishak M.I., Hartn J. & Norza M.S. (2004). The Dsclosure of Corporate Complance Program: A Study on the Board of Drectors n the Bursa Malaysa Publc-Lsted Companes, Proceedngs UIBMC 2004, pp250-263. Nandelstadh & Rosenberg. (2003). Corporate Governance Mechansms and Frm Performance: Evdence from Fnland, Journal of Corporate Fnance, Vol 8(3), pp700-719. Norza M.S & Kharul A. (2007). Corporate Governance Complance among BOD and the Effects to the Companes Net Proft Margn n Malaysa, Internatonal Conference on Organzatonal Leadershp n Academy for Global Busness Advancement World Congress, May 21-25, 2007. Proceedng. Norza M.S & Norzalna M. (2007). An Investgaton on Corporate Governance Complance and ts Relatonshp to the Frm s Performance n Malaysa, 6 th Internatonal Conference on Corporate Socal Responsblty n UTM, 11-14 June 2007. Proceedng. Pass, C. (2006). The Revsed Combned Code and Corporate Governance: An Emprcal Survey of 59 Large UK companes. Manageral Law, Vol. 58, pp467-478. Pfeffer, J. & Salancck,G.R. (1978). The External Control of Organsatons: A Resource-dependence Perspectve. Publshng by Harper & Row, New York. Shamsul Nahar Abdullah. (2004). Board Composton, CEO Dualty and Performances Among Malaysan Lsted Companes. Corporate Governance, Vol. 4(4), pp47-61. Shamsul Nahar Abdullah. (2006). Drectors Remuneraton, Frm s Performance and Corporate Governance n Malaysa Among Dstressed Companes. Corporate Governance, Vol. 6, pp162-174. The Central Bank and The Fnancal System n Malaysa (1999) Report. (onlne) Avalable: Http:///www.bnm.gov.my/ Vafeas, N. (1999). Board Meetng Frequency and Frm Performance, Journal of Fnancal Economcs, Vol.53, pp113-142. Wen Y., Rwegasra K. & Blderbeek J. (2002). Corporate Governance and Captal Structure Decsons of Chnese Lsted Frms, Corporate Governance: An Internatonal Revew, Vol 10(2), pp75-83. Wer, C. & Lang, D. (2001). Governance Structures, Drector Independence and Corporate Performance n the UK. European Busness Revew, Vol. 13(2), pp86-94. Zong-J. W. & Xoa-L. D. (2006). Corporate governance and Fnancal Dstress. The Chnese Economy, Vol. 39, No. 5, pp5 27. Notes Note 1. n chapter 15 of the Lstng Requrement Handbook Note 2. As part of the lstng requrement and also pursuant to Practce Note No. 5/2001. Note 3. manly those concernng the board of drectors(nkomborrak, 2001). 111
Vol. 2, No. 1 Internatonal Journal of Economcs and Fnance Table 1. The Results of Multple Regressons between BOD facets and Captal Structure Varables Model 1 Model 2 Model 3 Panel A: Pre-ICG (1998-2000) Constant 2.342 4.198-0.035 0.020* 0.000** 0.972 Dual Leadershp (DL) -1.500-2.069-0.129 0.134 0.039* 0.897 Board Sze (BS) -1.249 2.556-1.040 0.213 0.011* 0.299 Board Meetng (BM) -0.513 1.194 0.432 0.608 0.233 0.666 R 0.109 0.168 0.060 R Square 0.012 0.028 0.004 Adj. R 0.004 0.021-0.004 F-Statstc change 1.508 3.638* 0.450 Panel B: Md-ICG (2001-2003) Constant 2.654 5.316-0.253 0.008** 0.000** 0.801 Dual Leadershp (DL) -0.468-1.038-1.976 0.640 0.300 0.049* Board Sze (BS) -0.232 2.136-0.023 0.817 0.033* 0.982 Board Meetng (BM) -0.803-1.260 0.257 0.422 0.208 0.797 R 0.051 0.135 0.039 R Square 0.003 0.018 0.002 Adj. R -0.005 0.010-0.006 F-Statstc change 0.324 2.307* 0.194 Panel C: Post-ICG (2004-2006) Constant -1.619-0.467-0.413 0.106 0.641 0.680 Dual Leadershp (DL) 2.148 3.106-0.879 0.032* 0.002** 0.380 Board Sze (BS) 0.874 0.315 5.045 0.383 0.753 0.000** Board Meetng (BM) 0.539-0.697-2.219 0.590 0.486 0.027* R 0.119 0.165 0.273 R Square 0.014 0.027 0.074 Adj. R 0.006 0.019 0.067 F-Statstc change 1.790 3.480* 10.026** Notes: In each cell, t-value appears n the frst row and p-value (sg.) s n the second row. Symbols * ndcates sgnfcance at the 5 percent level whle ** ndcates sgnfcance at the 1 percent level 112
Internatonal Journal of Economcs and Fnance February, 2010 Table 2. The Results of Descrptve Statstc (ANOVA) and Correlaton (Pearson) among Varables Varables MIN MAX MEAN S.DEV DR DE IC DL BS BM Panel A: Pre-ICG (1998-2000) DR -10489.64 7426.90 79.97 746.91 1 DE -23.63 372.94 35.44 40.78 0.058 1 IC -10322.00 644.20-41.62 656.34 0.007 0.047 1 DL 1.00 2.00 2.07 0.52-0.085-0.091-0.012 1 BS 4.00 1.00 2.24 1.64-0.072 0.118* -0.055 0.105* 1 BM 3.00 5.00 3.37 1.67-0.027 0.054 0.024 0.030-0.030 1 Panel B: Md-ICG (2001-2003) DR -1443.15 3032.93 93.23 304.31 1 DE 0.00 280.97 33.52 36.73 0.256** 1 IC -49974.46 5808.76-125.01 2908.28 0.006-0.022 1 DL 2.00 1.00 1.41 1.77-0.026-0.051-0.037 1 BS 4.00 2.00 2.27 1.14-0.015 0.105* -0.002 0.041 1 BM 4.00 2.00 2.06 0.85-0.043-0.062 0.012 0.033 0.044 1 Panel C: Post-ICG (2004-2006) DR -4871.05 1817.10 61.39 313.99 1 DE 0.00 993.95 37.39 68.59-0.02 1 IC -1170.25 4729.94 51.77 279.74 0.064-0.023 1 DL 3.00 2.00 1.92 0.40 0.106* 0.160** -0.06 1 BS 4.00 2.00 2.08 0.60 0.039 0.002 0.247** -0.071 1 BM 5.00 2.00 1.95 0.64 0.024-0.045-0.088-0.066 0.078 1 Notes: In all cases of Pearson correlaton the symbols * ndcates correlaton s sgnfcant at the 5 percent level whle ** ndcates correlaton s sgnfcant at the 1 percent level (2-taled). 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% DUAL LEADERSHIP 80.2% 82.9% 72.2% 10.6% 17.2% 12.9% 12.4% 6.9% 4.7% PRE-ICG MID-ICG POST-ICG Combned Separated NA PERIOD Fgure 1. Dual Leadershp (Charman and Chef Executve Offcer) 113
Vol. 2, No. 1 Internatonal Journal of Economcs and Fnance PERCENT 90 80 70 60 50 40 30 20 10 0 54.5 20.6 8.7 14.8 BOARD SIZE (BS) 56.3 79.5 9.08.9 5.8 23.0 10.3 1.93.7 1.3 1.6 < 5.0 6.0-10.0 11.0-15.0 > 16.0 NA NO. OF BOD PRE-ICG MID-ICG POST-ICG Fgure 2. The Number of Drectors n the Company PERCENT 80 70 60 50 40 30 20 10 0 22.520.9 18.4 BOARD MEETING (BM) 15.6 61.9 71.1 43.7 8.5 10.8 7.4 9.8 3.21.6 3.2 1.1 < 5.0 6.0-10.0 11.0-15.0 > 16.0 NA NO. OF MEETING PRE-ICG MID-ICG POST-ICG Fgure 3. The Number of Board Meetng 114