The effect of corporate acquisitions on operating performance of Malaysian companies

Recent research observed in a number of countries with developed capital markets, including the US and the UK, have produced inconclusive evidence on the presence of gains to acquiring company shareholders and indeed to the existing of net wealth gains. Thus, the current study aims to contribute to the debate on takeover activity by examining whether operational gains arise, using operating cash flow to measure operating performance of Malaysian companies involved in takeover activity between the period 1988-1992. Rather than investigating the distribution of shareholder wealth changes, however, the focus is whether takeover in Malaysia lead to an improvement in corporate performance. Consistent with the characteristics of private acquisitions in the sample of 97 quoted acquiring and 117 target companies (comprising of 113 private, 3 public listed and 1 non-public listed), acquisitions in Malaysia appear to be non-disciplinary. Despite the non-disciplinary motives, the overall results reported in the current study suggest that acquisitions in Malaysia during the period 1988-1992 lead to operating cash flow improvements in the long run. The improvement in performance results from both increases in return on sales (operating cash flow per dollar of sales) and in asset turnover (sales per dollar of assets). These improvements are not achieved at the expense of the long-term viability of the combined firms nor does it appear to be driven by cost-cutting strategies. In addition, empirical evidence in the thesis indicates that the major source of operating gains is the acquisition of companies with a high overlap of product market relatedness. In addition acquisitions that are financed by equity produce higher operating gains. Acquirers who make no immediate change to the management team of the target company following the acquisition also achieve a greater increase in post acquisition performance, reinforcing the likelihood that this sample does not consist of disciplinary acquisitions. Further, the significant positive correlation between the share price market revaluation of acquiring firms around the bid period, the change in post acquisition operating performance and the premium paid for the target indicate that managers who anticipate post acquisition operating cash flow improvements will pay a premium to acquire the targets. The findings can also be viewed as evidence that cash flow data and market value data can capture real economic phenomena which explain a substantial proportion of the market's reaction to takeovers around the announcement period. The results demonstrate that Malaysian acquisitions do lead to improvements in operating performance that provide potential for benefits to both the economy as a whole and bidding company shareholders. However, as the majority of target companies in the current study were previously privately owned businesses, researchers and policy makers should be wary before generalising from these results

The Use Of CAMELS In Detecting Financial Distress Of Islamic Banks In Malaysia

The current study uses CAMEL (Capital Adequacy, Asset Quality, Management Quality, Earnings Efficiency, and Liquidity) ratings system, with the addition of Shariah Compliance Ratio (CAMELS) in order to detect the financial distress of Islamic banks in Malaysia. Using neural network, the study analyses data collected from the 17 Islamic banks annual reports for the period 2006 to 2010. It was found that all Islamic banks have higher ETA ratios which portray a good performance of capital adequacy and are less likely to face financial distress. As for asset quality, all Islamic banks did not have the possibility to face financial distress as they are able to handle their non-performing loans throughout the years. Meanwhile for management quality, all Islamic banks show lower ratios in paying salaries to their employee. Earning efficiency for all Islamic banks show better performance and will be less likely to face financial distress in terms of return on assets but not for return of equity. Liquidity indicates that the Islamic banks have a large number of loans but they have sufficient liquid assets in order to cover their liabilities and commitments. Lastly for Shariah Compliance, Islamic banks have complied with all rules and regulations that have been regulated by Bank Negara Malaysias Shariah Advisory Council

Risk Management Disclosure In Malaysian Islamic Financial Institutions: Pre- And Post-Financial Crisis

The East Asian financial crisis in 1997 and later the global financial crisis in 2007 and 2008 had a big impact on the corporate world as many companies and financial institutions collapsed during that period. Poor governance systems and lack of transparency in reporting including lack of risk reporting and disclosure were blamed as the roots of the problem. Conventional financial institutions have widely practiced risk management within their organization, but it is still under-developed in Islamic financial institutions due to new emerging market and unique business structures which are based on Shariah or Islamic law. Therefore, this study examined the risk management disclosure by all 17 Islamic financial institutions in Malaysia from 2006 to 2009, covering the period before, during, and after the global financial crisis. A disclosure checklist consists of mandatory and voluntary items developed to measure the level of risk disclosure. The descriptive result shows the risk management disclosure among the Islamic Financial Institutions was satisfactory. Analysis for a four year period revealed that the risk disclosure has greatly improved before and after crisis indicating that Islamic Financial Institutions have taken the necessary steps to improve their disclosure

Risk Management & Corporate Governance Characteristics in the Malaysian Islamic Financial Institutions

Purpose – Aim to examine the association between board characteristics and risk management committee (RMC) whether it is combined or separate with audit committee in the Malaysian Islamic financial institutions. This study will give an in-depth overview to explore about the risk management and corporate governance practices in the Islamic financial institutions especially on the oversight function and performance. Design/methodology/approach – This study employs secondary data collected from the Islamic banks’ annual reports for the period 2006 – 2009. Findings – It was found that the existence of RMC is significantly associated with proper governance at the board of directors’ level and thus, an effective and adequate Board member with larger size tends to have greater oversight monitoring function towards the company’s activities. It is easier to establish a separate risk management committee (RMC) and with greater levels of resources offered by larger boards, there would be less pressure to establish a combined risk management and audit committee. Furthermore, the result shows that company leverage has positive significant relationship with the existence of RMC and separate risk management committee with audit committee (SRMC) where a large proportion of long-term liabilities entail greater financial risk and firms with high leverage are more likely to have debt covenants and higher going concern risks. Originality/value – Since there are lack of studies conducted in this area, specifically among the Islamic banks in Malaysia, this study will broaden the scope by providing empirical evidence of the relationship between risk management committee and board characteristics in the Islamic financial institutions. Keywords: Risk Management, Corporate Governance, Islamic Financial Institution

Enhancing organisation effectiveness through human, relational and structural capital: an empirical analysis / Amrizah Kamaluddin, Rashidah Abdul Rahman

The research deepens the understanding of the role of intellectual capital in creating corporate wealth from the perspective of a developing nation like Malaysia. A different economic set up where there exists different technological advancements (Chen, Cheng and Hwang, 2005) and differences in views on the metaphors of knowledge between the West and Asia (Andriessen and Boom, 2007) suggests that, a different implication of intellectual capital may exist. Thus, the research contributes to the intellectual capital literature of the ASEAN countries where culture, politics, economics and social environment provide a different perspective and challenges. Resource-based theory views, intellectual capital as the resources of wealth creation, vital to firm financial performance and the key driver to achieve sustained competitive advantages (Riahi- Belkaoui, 2003; Tayles, 2004).The current research investigates the relationship of Malaysian listed companies’ intellectual capital with organisation effectiveness. Based on the results through questionnaire survey of 155 Malaysian companies’ managers, it was found that among the intellectual capital components, structural and relational capital significantly influence the organisation’s effectiveness with structural capital as the strongest predictor. This reveals that structural capital, which comprises investment enhancement in technology, processes and systems, coupled with relational capital which includes customer-oriented and market driven activities, are imperative in determining high performance and competitive advantag

Straightening the governance of Waqf using Tawhidic approaches / Dalila Daud and Rashidah Abdul Rahman

Waqf has the quality of perpetuity so waqf properties cannot be sold, bought or given as a gift to others. Therefore, it is necessary to make sure that these properties are fully utilised and properly managed. In order to properly manage the properties, it is essential for the State Religious Councils (SRC) to have proper governance, which can be shown through waqf reporting. The purpose of this paper is to propose a model of waqf governance which includes the Tawhidic strategies in order to prevent attributes of non-reporting. The model shows the governance factors that may have contributed to the implementation of reporting in SRCs. A series of Islamic governance literature is discussed and explained to establish a model. The conceptual model shows the recommended strategies and attributes of reporting and how Tawhidic strategies can be implemented to solve the problem of insufficient transparency in reporting. This paper has offered a new and significant information, by proposing a new model in providing insight on how to improve in waqf reporting transparency

Determinants of ethical identity disclosure in Islamic banks: an analysis of practices in Bahrain and Malaysia

Islamic banks are banks that are set up to operate within the Islamic business framework that is more equitable and based on socio-economic welfare of the society and the people. In Islamic law on commercial transactions and other related contractual activities (the framework), transparency and adequate disclosure are the fundamental determinants of a successful and peaceful relationship between the contracting parties. This is because the stakeholders of Islamic banks believed that the prescriptions of the framework would be the key determinants of the bank’s Ethical Identity Disclosures (EID). This study aimed at exploring and identifying the practical determinants of EID in Islamic banks. Disclosure information in annual reports (from 2007 to 2011) of 21 Islamic banks operating in Bahrain and Malaysia was gathered and analysed using Ethical Identity Index (EII) and Multiple Regression Analysis (MRA) models. The results of EII and MRA on nine ethical disclosure dimensions consisting of 80 constructs and 4 assumed determinants of EID among Islamic banks indicated that EID of both countries is low and that independent directors do not affect the level of social disclosure. However, board size, Shari’ah supervisory Board and investment account holders can significantly influence the disclosure level in Islamic banks. Hence, we conclude that our findings are in conflict with main theories such as agency theory, however supports institutional theory

Attributes of ethical leadership in leading good governance

The aim of this study is to present a practical and rational perspective of corporate governance. Specifically, this study explores the concept of ethical leadership in relation to corporate governance.It introduces morality as a core element in creating good governance practices, starting from the premise that corporate governance is subjective.We must therefore consider the social reality in which corporate governance is based.As such, inquiry about the social reality is required. Based on that premise, qualitative methodology is employed to gather views about the concept of ethical leadership in the context of corporate governance.The socially constructed reality of this study is represented by individuals who were categorized as experts and corporations known to have a high standard of corporate governance.Views from the subjects about ethics in the perspective of corporate governance were gathered.Content analysis was used to analyse the data.Triangulation techniques of data collection were adopted to provide richness and thickness to the data. Interviews, document analysis and observations were used to understand the reality of the research issue.Triangulation techniques support the validation and reliability of data.The research found several ethical leadership attributes that are essential to guide corporate governance practices.They are fundamental elements that have emerged from the data.This paper develops a framework around the dimensions of ethical leadership relative to the Malaysian business environment. The paper advances an understanding of ethical leadership in the Malaysian business environment and offers an agenda for future research in the corporate governance field

Social loafing and loan repayment accountability in group-based microbusiness financing / Farah Aida Ahmad Nadzri, Normah Omar and Rashidah Abdul Rahman.

Although individual lending is not unusual in microfinance, group lending, however, is considered as more common in this field. Through group lending, all group members are made responsible for the repayment of their loans. The group-based model financing is also viewed as effective in transferring the risk from the providers to the borrowers by imposing the social cost on the borrowers. Despite the high repayment rate recorded by the group-based microfinance institutions, there are arguments that this method of financing may lead to “social loafing”, a concept related to a reduction of an individual’s effort when working in a group. As there is limited research in this area, this study aims to explore the existence of such scenario in the largest and oldest microfinance institution in Malaysia, Amanah Ikhtiar Malaysia. Based on the observation and interviews with the members of the organization, this study found that to some extent “social loafing” does exist in Amanah Ikhtiar Malaysia. Although the situation is not common, “social loafing” is a serious issue that needs to be controlled in the organization as it is believed that it is contagious and may affect the whole organization in a long run

Social loafing and loan repayment accountability in group-based microbusiness financing / Farah Aida Ahmad Nadzri, Normah Omar and Rashidah Abdul Rahman.

Although individual lending is not unusual in microfinance, group lending, however, is considered as more common in this field. Through group lending, all group members are made responsible for the repayment of their loans. The group-based model financing is also viewed as effective in transferring the risk from the providers to the borrowers by imposing the social cost on the borrowers. Despite the high repayment rate recorded by the group-based microfinance institutions, there are arguments that this method of financing may lead to “social loafing”, a concept related to a reduction of an individual’s effort when working in a group. As there is limited research in this area, this study aims to explore the existence of such scenario in the largest and oldest microfinance institution in Malaysia, Amanah Ikhtiar Malaysia. Based on the observation and interviews with the members of the organization, this study found that to some extent “social loafing” does exist in Amanah Ikhtiar Malaysia. Although the situation is not common, “social loafing” is a serious issue that needs to be controlled in the organization as it is believed that it is contagious and may affect the whole organization in a long run