Analysing the role of corporate social responsibility in determining firm value

Business entities are basically established to maximize wealth in order to create additional value for their owners. The concept of corporate social responsibility presupposes that corporate bodies should not only be concerned with shareholders wealth maximization but should equally care for the need of other noninvesting stakeholders. Hence, to ensured long-term value for corporate firms, attention should be tailored at satisfying the needs of both investing and non-investing stakeholders. Stakeholder’s welfare in overall enhanced corporate valuation. This paper highlight the takeholder’s theory as the underpinning theory of the study

Cash holdings, political connections, and earnings quality

Purpose– The purpose of this paper is to investigate the influence of cash holding, political connection and their interaction effect on earnings quality in the Malaysian environment, where political influence plays a vital role in many aspects of business dealings and resources allocation is seriously affected by politics. Design/methodology/approach – This paper uses ordinary least square and seemingly unrelated regressions upon a sample of the Malaysian top 100 listed firms.Findings – This paper finds that earnings of firms with excess cash reserves are of high quality. Consistent with previous research, the study finds that investors perceive earnings numbers of politically connected firms as being of low quality.However, this research fails to support an expectation that the adverse consequences of holding a large amount of cash to earnings quality would be more pronounced when political extraction is high.The findings of this study suggest that policy makers should encourage or mandate firms to disclose information in relation to their connections with government, political party, or politicians so that investors and all interested parties can use the information to better assess the firms’ earnings quality. Originality/value– This research is considered as the first attempt to examine the relationships between cash holdings, political connections, and earnings quality in a developing country such as Malaysia

An investigation into the effect of surplus free cash flow, corporate governance and firm size on earnings predictability

Purpose– Existing studies on corporate governance mainly focus on how a strong governance system enhances the valuation of firms with cash holding or free cash flow agency problem. The aims of this paper are threefold.First, it investigates the impact of surplus free cash flows (SFCF) on earnings predictability.Second, it investigates whether corporate governance variables moderate the negative impact of SFCF on earnings predictability. Finally, this study examines whether the ability of corporate governance to mitigate SFCF and improve the predictive value of earnings varies between large and small firms.Design/methodology/approach– This paper uses heteroskedasticity-corrected least square regressions upon a sample of Malaysian listed firms.Findings– This paper finds that firms with high SFCF experience less earnings predictability. It also indicates that earnings of firms with high SFCF are more predictable when institutional investors hold a large stake of shares and when a chairperson is independent. Finally, this paper reveals that the role of institutional and managerial ownership in mitigating agency conflict of free cash flow and improving earnings predictability is more prominent in larger firms. This study implies that investors still have reservations about the ability of boards to enhance earnings numbers in Malaysia, although efforts were taken to reform the corporate governance mechanisms following the Asian financial crisis.Originality/value– This research is considered as the first attempt to examine the relationships between SFCF, corporate governance, firm size, and earnings predictability in a developing county such as Malaysia. The findings of this paper serve as a wake-up call to policy makers to evaluate the importance of governance structure in enhancing earnings predictability in emerging economies

The impact of board independence and foreign ownership on financial and social performance of firms: evidence from the UAE

Purpose: This study examines the impact of two different types of foreign ownership—by Arab and non-Arab investors on firms' financial and social performance. It then goes on to investigate how the degree of board independence affects the aforementioned relationship between these two types of foreign investors on firm performance. Design/methodology/approach: The sample for the study is a panel of all listed firms in the Dubai Financial Market (DFM) and the Abu Dhabi Securities exchange (ADX) from 2008 to 2012. Findings: Results indicate that while Arab foreign ownership affects firms' financial and social performance negatively, non-Arab foreign ownership does so, positively. Further tests indicate that board independence weakens the negative relationship between firm financial and social performance with foreign Arab ownership and deteriorate the relationship between firm financial and social performance and non-Arab foreign ownership. Research limitations/implications: Future studies may extend the coverage of the study by including other countries in the region and other identities of the foreign investors. Practical implications: This study may help policy makers in the UAE to improve the implementation and enforcement of existing regulations concerning corporate social responsibility (CSR) and board independence. It also highlights the need to look into the monitoring role of independent board members. Originality/value: This is the first study to examine the role of board independence on the relationship between foreign ownership and firm's financial and social performance. To the best of our knowledge, this is the first paper that attempts to enrich the understanding of foreign ownership by classifying it into Arab versus non-Arab

Financial ratio analysis: decision usefulness for potential shareholders’ benefit

The certainty of the reliance on the use of financial ratio analysis in making investment decisions by potential investors still remained a mystery. This has to do with the choice of ratios to select when making investment decisions. Many shareholders in Nigeria are uneducated or illiterate, and due to their ignorance, they cannot use ratio analysis in evaluating firms for investment decisions. Thus, this paper explores the concept of financial ratio analysis in terms of the decision usefulness of financial ratios. The paper suggests that the relevant financial information needed for the purposes of making investment decision can be sourced through the use of financial ratio analysis. Therefore, management must ensure that disclosure of comprehensive financial ratios form part of financial statement prepared for the overall appraisal of firms

Forensic accounting and economic value added as panaceas for analysis firm value

Purpose - In spite of the comprehensiveness of the International Financial Reporting Standards (IFRS) in ensuring fair value accounting.There are still few loopholes in the accounting standards which provide sufficient opportunities for financial statement manipulations (Ikpefan, & Akande 2012).Thus, this practice undermine the “true and fair” view of the financial statement as a result of manipulating financial accounting records for selfish economic aggrandisement within the purview of applicable laws and prevailing accounting standards..The objectives of this paper is to examine the role of forensic accounting and economic value added in analysis the corporate value of firms.Mehodology - The conceptual framework sees forensic accounting practices and economic value added as the antecedent variables and the firm value as the outcome variable. The framework highlight the relationship between value relevance determinants such as forensic accounting and economic value added and the firm value of corporate firms.It emphasis the employment of forensic accounting practices and the analysis of the economic value added as the means by which the real value of firm can be assessed. Findings - The paper shown that forensic accounting practices and economic value added measures are basic remedy for fraudulent financial statement practices because of their invulnerability to the practice of creative accounting

Association between Board characteristics and earnings quality: Malaysian Evidence

The present study examines the relationship between board characteristics and earnings quality after the amendment of the Malaysian Code on Corporate Governance in 2007. Using heteroskedasticity-corrected least square regressions upon a sample of Malaysian firms listed in 2008 and 2009, the study finds that the quality of earnings is higher among firms with independent chairmen than among those firms with non-independent chairmen. However, in contradiction to the expectations of the study, inconclusive results are found concerning board independence. The results also demonstrate that investors do not perceive board size as a good indicator of quality earnings. The findings imply that investors continue to have reservations regarding the ability of boards to enhance the quality of earnings, although efforts have been made to reform corporate governance following the Asian financial crisis. The study serves as a signal to policy makers to evaluate the importance of board mechanisms when enhancing financial reporting quality in emerging markets

Are audit committee characteristics important to the internal audit budget in Malaysian firms

An audit committee is viewed as an essential self-regulatory internal governance instrument that is expected to provide an oversight role over the entire process of financial reporting. An internal audit is also one of the corporate governance cornerstones that is essential for the effective monitoring of the operating performance of internal control. To ensure its effectiveness, the audit committee monitors the resources available to the internal audit, and internal control functions should be directly reported to the audit committee. This study analyses the effect of audit committee characteristics on internal audit budget in Malaysia, where data on internal audit budget is available and how well audit committee monitors the internal audit function is questionable. Our study also opens the door to an unanswered question, that is, whether an audit committee index is related to internal audit budget. Data of 96 companies listed on Bursa Malaysia for a three-year period, 2012-2014, was utilized to achieve this end. The regression results show that audit committee meeting and index are significantly and positively associated with internal audit budget. They also indicate that audit committee tenure has a significant and negative impact on internal audit budget. The findings of the study support the recent policy initiatives in relation to audit committee and internal audit. They also serve as a wake-up call to policy makers in requiring more committed and skilled members on the audit committee.Un comité de auditoría es visto como un instrumento de gobierno interno de autorregulación esencial que se espera que proporcione un rol de supervisión durante todo el proceso de información financiera. Una auditoría interna es también una de las piedras angulares de gobierno corporativo que es esencial para el monitoreo efectivo del desempeño operativo del control interno. Para garantizar su eficacia, el comité de auditoría supervisa los recursos disponibles para la auditoría interna, y las funciones de control interno deben informarse directamente al comité de auditoría. Este estudio se propone analizar el efecto de las características del comité de auditoría en el presupuesto de auditoría interna en Malasia, donde los datos sobre el presupuesto de auditoría interna están disponibles y qué tan bien supervisa el comité de auditoría la función de auditoría interna es cuestionable. Nuestro estudio también abre la puerta a una pregunta sin respuesta, es decir, si un índice de comité de auditoría está relacionado con el presupuesto de auditoría interna. Los datos de 96 compañías enumeradas en Bursa Malaysia por un período de tres años, 2012-2014, se utilizaron para lograr este fin. Los resultados de la regresión muestran que la reunión y el índice del comité de auditoría están significativamente y positivamente asociados con el presupuesto de la auditoría interna. También indican que la tenencia del comité de auditoría tiene un impacto significativo y negativo en el presupuesto de auditoría interna. Los hallazgos del estudio respaldan las recientes iniciativas de política en relación con el comité de auditoría y la auditoría interna. También sirven como una llamada de atención para los responsables de las políticas al requerir miembros más comprometidos y capacitados en el comité de auditorí

Corporate social responsibility and firm market performance: the role of product market competition and firm life cycle

Purpose- This study empirically investigates the role of product market competition and mature-stage firm life cycle on the relation between corporate social responsibility (CSR) and market performance in an emerging market context – Malaysia.
 Design/methodology/approach- The authors construct a comprehensive CSR index toward the economy, environment and society (EES) and apply both Ordinary Least Squares (OLS) and Two-Stage Least Squares (2SLS) instrumental variables (IV) approaches to test the hypotheses of the study.
 Findings- The authors find that EES-based CSR generally enhances firms' market performance; however, the level of product market competition undermines the market performance of socially and economically responsible firms. In addition, the study results indicate that mature-stage firm life cycle with more involvement in CSR activities shows better market performance. However, the endogeneity check of CSR suggests that both CSR and mature-stage firms are mutually exclusive in influencing market performance. The study findings are robust to alternative measures and different identifications of high and low default risk situations of sample firms.
 Practical implications- This study carries practical policy implications for the listed firms, regulators and stakeholders in general. For example, regulatory bodies may promote greater involvement in CSR activities by listed companies in the Malaysian stock market. Investors and other market participants should be aware of factors influencing socially responsible firms' market performance such as the corporate life cycle and the level of competition in product markets.
 Originality/value- This research work responds to the call of regulatory bodies in Malaysia at a time when the Malaysian economy is under threat of environmental distraction practices by the palm oil industry and import ban by the largest export market, i.e. the European Union by 2030. The study also contributes to the theoretical literature by refining the moderating role of product market competition and mature-stage life cycle on the relationship between CSR and market performance from the perspectives of resource-based and stakeholder theories in emerging economy settings