Corporate governance structure and firm performance : empirical evidence from Brusa Malaysia, Kuala Lumper

The issue of corporate governance has been emerging as important phenomena that has been searched extensively both in developed countries due to its strategic impact on the monitoring of management activities and firms&rsquo; performance. Yet little attempt has been made in developing countries like Malaysia to ascertain what constitute corporate governance and its impact on firm\u27s performance. Therefore, this study aims at examining the structure of the corporate governance and its impact on firm&rsquo;s performance. This study is based on 100 firms, which are the component of the Composite Index (CI) serve as market barometer. This study employs cross-sectional annual multiple regression model to examine, what constitutes the corporate governance structure and its impact on performance of the firm. The analysis was based on annual regression over 5 years period from 1997 through 2001. Three different blend of surrogate for corporate governance were developed for good corporate governance structure. These are the independent non-executive (outside) directors, audit committee and remuneration committee. To isolate the size effect from the impact of corporate governance structure on firm&rsquo;s performance, firm&rsquo;s size was also included are variable in the model. The ratio of net income before tax to total asset is used as a surrogate for firm&rsquo;s performance. Evidence from the study indicates that there is partial relation between corporate governance structure and corporate performance. The presence of both audit and remuneration committee serves as an important monitoring device to control management activities that lead to increase firm\u27s performance. While on average, the presence of independent nonexecutive directors does not provide any significant explanation for the firm\u27s performance. However, the firm size appears to have significant impact on corporate performance.<br /

An SVAR Analysis of Monetary Policy Dynamics and Housing Market Responses in Australia

This paper examines the impact of monetary policy and a range of sector-specific and macroeconomic shocks on the Australian housing market using quarterly data for a period of 1974-2008. The paper develops a structural vector autoregressive (SVAR) model based on contemporaneous restrictions to analyse the dynamics of these shocks. The results indicate that supply of new houses in Australia rises with higher real house prices; and that house prices rise and fall with higher inflation rate and interest rate, respectively. Dynamics of the impulse responses reveal significant effect of monetary policy on new house constructions, real house prices, material costs and inflation. Results also suggest that housing output, real house prices and interest rates respond significantly to shocks to housing supply, housing demand and to a number of other variables. These results are expected to shed some lights on the current policy environment pertaining to the Australian housing sector.Monetary transmission, Housing market, Structural VAR

Auditor change during listings: effect on IPO premiums

The study examined the relationship between choice of quality differentiated audit firm and initial return at listing. It is conjectured that the superior audit quality of Tier 1 audit firms helps to reduce ex-ante uncertainty and consequently reduces the initial premiums at listing. The findings show that there is an inclination for listed firms to engage Tier 1 audit firms, and no significant difference in the initial returns of IPOs firms audited by either Tier 1 or Non-Tier 1 audit firms were observed. However, higher significant initial returns for new issues were observed for Second Board firms relative to Main Board firms. The findings do not appear to suggest that the auditor reputation is a determinant of initial returns at listing. The findings are consistent with those documented by Shamsher and Annuar (1997) that investors are indifferent to the quality of audit service provided by Tier 1 and Non-Tier 1 audit firms

Oil price volatility, investment and sectoral responses: the Thai experience

This paper investigates the nexus between investment and oil price volatility in the context of a developing industrialised economy, Thailand. In the post Asian Crisis era, Thailand has been on a steady phase of recovery with industrial expansion as well as revival of investment and output growth. A significant portion of such growth is attributable to investment growth in metal products, machineries and other transportable goods which are the energy dependent industries. Implicit in these phenomena is the need to further scrutinise the impact of the exogenous shock emanating from uncertainty in oil market on the scale of investment in various sectors of the Thai economy. Using a threshold-based components generalized autoregressive conditional heteroskedasticity (CGARCH) model, the oil price volatility is decomposed into permanent and transitory volatilities. The oil price volatility components are then analysed in a structural vector autoregression (SVAR) framework, along with investment and other key macroeconomic variables. Dynamic impulse response functions obtained from the SVAR model reveal significant dampening effects of the conditional and transitory oil price volatility shocks on Thailand&rsquo;s aggregate and sectoral level investments. The impulse responses clearly indicate that as the temporary volatility in oil price rises, total investment decreases significantly. At sectoral level, the responses of investments in food and textiles products suggest a significant dampening effect on investments due to shocks in both the conditional and transitory volatilities of oil prices. In contrast, a shock in the permanent volatility leads to only a small decline in investment in this sector, and for only about a quarter. Similar effects were also observed for other transportable goods, consisting primarily of wood products, furniture, and cork, straw and plaiting materials. The investment in the business services sector, which comprises investment in real estate services, does not exhibit any significant effects of shocks in the conditional, permanent and transitory volatilities of oil prices. The findings of this study have important implications for policy. Firstly, since the Thai economy is relatively energy intensive, any dynamic shock emanating from energy market will be detrimental to investment and economic growth. Secondly, the significant and stronger adverse effects of the temporary oil volatility point to the absence of insurance markets for guarding against any volatility risks, or the lack of managerial expertise for identifying and accommodating the negative impacts of a heightened transitory or permanent oil price volatility. Thirdly, firms operating in energy-dependent industries ought to remain vigilant especially in regards to weather adverse impacts of any transitory volatility of oil prices

Auditor switch decision of Malaysian listed firms: tests of determinants and wealth effect

This article examines the economic rationale for auditor change by Malaysian listed firms by examining audit switch effect on share prices. The auditor change decision by management to retain or to change involves a switch across audit firms with different quality. Audit quality is defined by classifying the audit firms into Tier 1 (Big-5) firms and Tier 2 (non-Big 5) firms. The distinguishing attribute between the two groups of audit products is believed to be the credibility that each group brings to the audit engagement. Factors associated with the choice of audit firm and changes for firm characteristics associated with auditor choice were investigated using the logistic regression model. The findings show that the auditor switch of Malaysian listed firms is partly explained by changes in management and turnover growth. Changes in firms' characteristics such as asset growth, purchase of fixed asset to total asset, leverage and changes in financing activities explain auditor switches. There appears to be no evidence of significant wealth effect from auditor switch announcements

Asymmetric recognition of good and bad news at Malaysian capital market : a pre and crisis analysis

The aim of this paper is to analyze the asymmetric recognition of good and bad news on reported earnings of Malaysian-listed firms. The study uses both descriptive and regression analyses to ascertain whether there is a contemporaneous relationship between news (good and bad) and reported earnings. The analysis is based on a sample of 150 firms listed on the Bursa Malaysia Index over a period of 10 years, from 1990 to 2000. Two regression models were adopted based on Basu (1997) and Giner and Rees (2001). The first model aims to capture asymmetric recognition of good and bad news into reported earnings while the latter model is developed to capture both asymmetric recognition of information shock and permanent earnings effect on contemporaneous earnings. The evidence from this study reported the steady increase in earnings per share till 1997. However, a drastic decline was observed for the period 1997 to 1999 because of Asian financial crisis. The findings from the regression model one suggested that the asymmetric recognition of good news was more prominent during the good time compare to bad time and vice versa. The findings from model two also suggested that autoregressive effect of permanent effect was very prominent both for crisis and non crisis periods.<br /

Trading activities and cross-sectional variation in stock expected return : evidence from Kuala Lumpur stock exchange

Trading activity has been considered as one of the possible factor that explains the cross-sectional variation in stock returns. In this study I use trading volume as a possible measure to proxy for liquidity as part of the trading activity. Monthly observations were used over a period 1995 to 2005 to examine the liquidity effect on stock expected returns. Based on findings it is appeared that level of liquidity does matter in explaining the expected stock returns in Malaysian capital market. While Fama-french factors also provide important explanation for stock returns. But none of the second moment variables proxying liquidity appeared to be statistically significant. However, momentum effect apprearently explain ing the cross-sectional variation in stock returns.&nbsp

The equilibrium relations between stock index and bond index: evidence from Bursa Malaysia

This paper aims at examining the correlation structure, co-integration relationship and volatility linkage between stock and bond market indices over a period from January 1994 to June 2004. This study uses Johansen Cointegratoin test, VECM-X model and GARCH (1,1) with MDH model to examine the existence of long-term relation and volatility linkage between stock and bond market. The findings shed some light on the existence of mean-reverting pattern of correlation across different economic environments.&nbsp; Findings on co-movement of stock and bond indices suggest an equilibrium relationship with short-term error correction. While evidence from volatility linkage also suggests that bond market cannot provide a meaningful explanation for conditional volatility in stock market, therefore, rejecting the mixture of distribution hypothesis

Managerial ownership concentration and agency conflict using logistic regression approach : evidence from Bursa Malaysia

This paper adopted logistic regression model to examine the relationship between level of managerial ownership concentration and agency conflict which are proxied by level of risk, firms leverage and firms dividend policy. The study covers a period of 5 years from 1997 through 2001. The study is based on the 100 blue-chip stocks, majority of which are derived from CI components. The findings suggest a positive and significant association between level of level of risk at lower level and managerial ownership while a negative and significant association is also evidenced between risk at higher level and managerial ownership concentration. While debt policy which serves as positive monitoring substitute for agency conflict is found to be positive and significant explaining the level of ownership concentration. Furthermore, dividend policies, which also serve as monitoring, substitute to reduce agency conflict between manager and external shareholders do not appear to have any significant impact on managerial ownership. On the other hand, the level of institutional ownership, which serves as external monitoring force, is found to have inverse impact on level of managerial ownership concentration. This is marginally significant at 10 level (p=.12). The findings, in part explain the argument that the managerial ownership help reduce agency conflict between outside equity holders and managers.<br /