Context matters: a critique of agency theory in corporate governance research in emerging countries

This paper aims to provide an overview of the trend or focus in the research of corporate governance in emerging countries with the aim to identify the gaps in the existing literature.The review notes that corporate governance research in emerging countries is dominated by economic perspective, in particular the agency theory, as researchers follow the strands of research conducted in the more advanced countries, especially the US and the UK.This paper argues that although influential, agency theory is unable to provide sufficient understanding on many issues related to practices for the fact that corporate governance is not happening in social vacuum; it is affected by various other institutional factors and local context.Hence, in order to gain better understanding of corporate governance in emerging countries, alternatives perspectives or theories, such as institutional theory, should be employed by the researchers

Context Matters: A Critique of Agency Theory in Corporate Governance Research in Emerging Countries

This paper aims to provide an overview of the trend or focus in the research of corporate governance in emerging countries with the aim to identify the gaps in the existing literature. The review notes that corporate governance research in emerging countries is dominated by economic perspective, in particular the agency theory, as researchers follow the strands of research conducted in the more advanced countries, especially the US and the UK. This paper argues that although influential, agency theory is unable to provide sufficient understanding on many issues related to practices for the fact that corporate governance is not happening in social vacuum; it is affected by various other institutional factors and local context. Hence, in order to gain better understanding of corporate governance in emerging countries, alternatives perspectives or theories, such as institutional theory, should be employed by the researchers. Keywords: Corporate Governance; Developing Economies; Agency Theory; Institution JEL Classification: M4

Corporate governance, critical junctures and ethnic politics: Ownership and boards in Malaysia

Quotas and affirmative policies are often implicated in debates on corporate governance. This paper examines critical junctures and the role of willful actors in mobilizing their ethnic and political positions to affect governance reforms in Malaysia since independence. We trace the trajectory of Bumiputera affirmative policy in shaping equity ownership and composition of boards of directors using historical institutionalism as a lens. We find ethnic politics has been an endogenous force resulting in Malay share of equity ownership rising from negligible levels to over 20 percent and almost half of the boards of directors of listed companies comprising of Malays. Our analysis shows that governance is a representation, as well as a manifestation, of how ownership and board structures are institutionally reproduced rather than a mere response to global isomorphic pressures

Financial restatements among Malaysian listed companies: Do corporate governance and ownership matter?

With the issuance of Corporate Governance Code in 2000 in Malaysia, it is expected that corporate governance has played an important role ensuring the reliability of financial statements.This study seeks to examine the nature financial restatements in Malaysia.It also seeks to investigate whether the corporate governance characteristics are associated with financial restatement. Using the restated financial statements during the period of 2002 to 2005 matched with a control group of non-restating firms, the results show that the primary reason for misstating the accounts is to inflate earnings. The nomination committee of the firms that restated is less independent and managerial ownership and the logistic regression analysis indicates that the extent of ownership by outside blockholders is able to constrain managers from misstating accounts.The results also show that firms with high level of debts (an indicator of the presence of debt covenants) are more likely to commit in financial misstatement.The research is significant as it provides evidence on the role of corporate governance, especially the ownership by outside blockholders in Malaysia.This shows that outside blockholders is effective in disciplining managers so that the accounts so prepared are not misleading.This study does not support the move by Malaysian Government to require companies audit committee to be wholly independent.It is suggested that the more important thing is to have audit committee members who understand accounting and the related standards

Does placement of the auditor's report in Malaysian companies' annual reports matter?

This study attempts to investigate whether a management decision to locate the auditor's report in the financial statements is explained by information signaling theory.The location of the auditor's report in the financial statements is explained by information signaling theory.The location of the auditor's report is being the focus of this study because a decision on the location of the auditor's report in the financial statements is the management's discretion.The auditor's report is important because it tells readers of the annual report whether the firm has kept all the records properly and that the financial statements are prepared in accordance with the approved accounting standards.We posit that a firm that conveys good news is more likely to place its auditor's report at the beginning of the financial statements than at the end, and vice-versa.Based on 698 listed firms listed on the Bursa Malaysia as on December 31,2003, our evidence shows that information signaling theory does not support our prediction on the management decision to place the auditor's report.We find that about eighty percent of the firms in our study located their auditor's reports at the beginning of the financial statements.Therefore, it appears that it is the tendency of firms in Malaysia to place their auditor's reports at the beginning rather than at the end.Therefore, this signifies the importance of the auditor's report in the financial reporting framework.We reveal that none of the profitability measure, namely ROA, EPS and Tobin's q, is associated with the location of the auditor's report.Therefore, information signaling theory is not supported in explaining the location of the auditor's report

Financial restatements and corporate governance among Malaysian listed companies

Purpose – This paper seeks to examine the effects of Malaysian Code on Corporate Governance on the nature of financial restatements in Malaysia and whether corporate governance characteristics are associated with financial restatements. Design/methodology/approach – Data for this paper are obtained from annual reports that had been restated for the period of 2002-2005 with firm-years being the unit of observation.A control group comprising non-restating firms is formed using match-pair procedures where restated and non-restated firms are matched by size, industry, exchange board classification, and financial year end The data are subsequently analyzed using a t-test, the Pearson correlation and logistic regression. Findings – The results show that the primary reason for misstating the accounts is to inflate earnings. The nomination committee of the firms that restated is found to be less independent with higher managerial ownership. The logistic regression analysis indicates that the extent of ownership by outside blockholders deters firms from misstating accounts.Surprisingly, audit committee independence is associated with the likelihood of financial misstatement. Financial restatements, nevertheless, are not found to be associated with board independence, managerial ownership, and CEO duality.Finally, the results show that firms with high level of debts are more likely to commit in financial misstatement. Practical implications – The research is significant as it provides evidence on the role of corporate governance, especially the independence of the nomination committee and extent of ownership by outside blockholders in Malaysia.It shows that outside blockholders is effective in disciplining managers so that the accounts so prepared are not misleading. The move in 2007 by the Malaysian Government to require companies audit committee to be composed of only independent and non-executive directors, as well as requiring audit committee members to be financially literate, should be seen as important in ensuring the effectiveness of the audit committee. Originality/value – This research is considered as the first study which examines the effects of corporate governance variables on the incidents of financial restatements in a developing country.The findings of this paper would be useful for policy makers in evaluating the importance of corporate governance in emerging countries, specifically on the issue of quality financial reporting

The Moderating Effects of Top Management Support on the Relationship Between Internal Audit Quality and Organisational Performance of Nigerian Universities

This study investigate the relationship between internal audit quality (IAQ) and organizational performance with moderating variable of top management support in the federal universities in Nigeria. The independent variables consist of internal audit size (IAS), and internal audit reporting line (IARL) with organizational performance as the dependent variable. A total of 400 samples of senior internal auditors’ level were drawn from 40 Nigerian federal universities. Data was collected via questionnaires and distributed to internal auditors. 400 questionnaires were distributed, 342 were returned, 29 were rejected and 313 were retained. The data was analysed using both descriptive and inferential statistics for testing hypotheses. The results of the study after testing the direct relationship of the independent variables with the dependent variable reveals that there are no significant positive relationships be批tween the variables of IAS and IARL with organizational performance. While, the result of moderating effect of top management support in the relationship between the independent variables and organizational performance, have shown that IAS have positive and significant relationship with organizational performance, except IARL. The result shows strong correlation between the dimensions of IAQ and organizational performance and optimum performance in Nigerian federal universities is attainable when internal audit quality dimensions are functional. The study has contributed greatly in determining the effect of the moderating variable in the study which add value to the existing literature not only in the Nigerian federal universities but also the internal auditing practice in the Nigerian public sector. It is therefore recommended that the dimensions of internal audit quality should always be given attention a better service delivery and efficiency. Keywords: Internal Audit Quality, Top Management Support, Organizational Performance, Nigerian Federal Universitie

The provision of non-audit services, audit fees and auditor independence

The objectives of this study are to examine the effect of non-audit services on audit fees, to investigate the relationship between non-audit fees and the issuance of qualified audit opinion, and to analyse the proportion of non-audit fees to total fees paid by a client to its auditor.The regression analysis reveals a significant positive relationship between audit fees and non-audit fees, which is contrary to the theory available in the literature.Further tests are done and alternative explanations are provided.The results obtained from the t-test suggest a significant relationship between non-audit fees and qualified audit opinions.The outcomes indicate that on average audit opinions are dependent on the amount of non-audit fees.Finally, the descriptive analysis presents a worrying development about the ratio of non-audit fees to total fees.The study suggests ways to improve the independence issues in Malaysia

Internal audit quality dimensions and organizational performance in Nigerian federal universities: the role of top management support

The study examines the moderating effects of top management support in the relationship between internal quality dimensions and organizational performance in Nigerian federal universities. The study employed a sample of internal audit staff at senior level from 40 federally owned universities in Nigeria where 400 samples have been drawn for the analysis. Questionnaire instrument was used in generating the data having subjected to Exploratory Factor Analysis (EFA) and Confirmatory Factor Analysis (CFA) aimed at establishing underlying dimensions. The data was collected and analysed using inferential statistics and the findings revealed that interaction of internal audit competence, internal audit independence, and internal audit size, with top management support significantly and positively influence organization performance of Nigerian federal universities. The findings provide ground for new policy initiatives to strengthen internal audit and enriched the literature by providing the moderating effect of top management support as instrumental to organizational performance. It is therefore recommended that internal audit competence internal audit independence and internal audit size should be given more attention and mechanism through which these qualities can be employed and sustained for more internal audit service delivery and efficiency in Nigerian federal universities

CEO career horizons and earnings quality in family firms

Purpose – The present study examines the effect of the chief executive officer (CEO) career horizon (CH) problem on earnings quality (ERN) for selected family-controlled firms known to have a unique operational goal. Design/methodology/approach – The generalised method of moment linear regression model was used on a sample of family-controlled firms in Malaysia from 2005 to 2016. Findings – The study found a negative relationship between CH and ERN, measured by earnings persistence and earnings predictability. However, in the earnings predictability model, the reverse was found to be the case after interacting CH with CEO family affiliation, CEO experience and CEO equity. However, the use of a reputable auditor could not mitigate the CH problem. Also, the study obtained a closely related result in the earnings persistence model. The result aligns with the socio-emotional wealth (SEW) theory, which states that the goals of family-controlled firms go beyond financial objectives to include other non-financial objectives, and hence, their commitment to perpetuating their dynasty encourages them to preserve the quality of their earnings. Originality/value – Existing studies on family firms and ERN have treated family firms as homogeneous entities by comparing family and non-family firms, using the underlying theoretical justification of the agency theory. However, this study departs from the agency theory, by considering those factors (i.e. the extent of CEO alignment with family owners and the choice of auditor), using the SEW theory, which establishes the differences among family firms. This work builds on that of Chen et al., (2018) and Ali and Zhang (2015), which suggested that corporate governance can mitigate the CH problem. Therefore, the strength of a CEO’s attachment to the family firm (measured by CEO equity ownership and CEO affiliation to family members in family firms) and the choice of the auditor can explain the variation in the effect of the CH problem in family firms