Effect of Board Diversity on Financial Performance of Firms in Malaysia: A Moderating Role of Corporate Sustainability Practices

The volatile financial performance (FP) of listed firms in Bursa Malaysia has been observed since 2008. The total earnings by companies in FTSE Bursa Malaysia KLCI index in 2016 dropped by 30 percent showing unusual performance pattern among the listed firms. Both FTSE Bursa Malaysia KLCI and EMAS index year on year capital return performance are also found negative from 2014 to 2016. The declining FP of firms is often associated with weak corporate governance (CG) practices. The board diversity (BD) under CG mechanisms induces the improvement of FP and long-term success of a firm. Since BD impacts on FP, this study proposes a conceptual framework by introducing corporate sustainability practices (CSP) to see how it moderates the relationship between BD and FP. The conceptual framework offers useful information which may help for further investigating in BD and FP. The future studies should validate empirically the proposed research framework. Keywords: Corporate Sustainability Practices, Board Diversity, Financial Performance, Stakeholder Theory, Bursa Malaysia. DOI: 10.7176/JESD/10-10-12 Publication date:May 31st 201

Application of principal component analysis on equity valuation multiples: Evidence from Malaysian firms

Investment analysts often used equity valuation multiples to assess the performance of stocks in relation to likely future return to shareholders. Valuation multiples used by analysts are price to earnings, price to book value, price to cash flow and price to sales multiples. However, researchers have argued that correlation exists between the multiples hence assessing them individually and later merging them to one multiple results to reduplication.This study employed the principal component analysis (PCA) method to condense the four equity valuation multiples (EVM) of 223 randomly selected listed firms in Malaysia for the period of 2008-2013. The PCA result reveals that three (3) components explained 99% of the total variables variance. Suggesting that, the three components (price to earnings, price to book value and price to cash flow multiples) can satisfactorily explain all the EVMs.The implication is that strong correlation exists between EVMs of Malaysian firms.Therefore, the study recommends the application of principal component analysis methodology in the analysis of the equity valuation multiples because of correlation that exists between the valuation multiples. The study is limited to EVMs, entity valuations are not covered in the study.Applying PCA to equity valuation multiples ensures accuracy and reliability of result interpretation due to absence of multicolearity in the decomposed principal component

Tax professionals’ perceptions toward tax authority: Ways to strengthen the Malaysian tax administrative system

This article examines tax professionals’ perceptions toward services provided by the tax authority, i.e. Inland Revenue Board Malaysia (IRBM).Using a survey questionnaire, the views of the tax professionals on twelve aspects of the IRBM services were analysed. E-filing system is perceived to be the most efficient service provided by the IRBM while the least efficient service is related to bureaucracy.Comments from tax professionals offer rooms for collaboration with the IRBM in improving the IRBM services specifically related to different environment faced by tax professionals in completing their daily tasks.It is hoped that this study also leads to increase understanding between tax professionals and the IRBM

Expropriation of minority interests and corporate diversification in Malaysia

This study provides evidence on ownership structures and corporate diversification by analysing 355 public listed companies (PLCs) in Malaysia.The majority of the companies in the sample have an ultimate controlling owner, particularly an individual or family.As controlling owners have on average, rights of control over a greater percentage of shares in any given company than their rights to participate in the cash flows from that company, controlling owners may have an incentive to expropriate minority interests through methods such as inefficient corporate diversification.The risk of such expropriation would be expected to be reflected in the value of highly diversified companies.The results of the research provide no evidence to support the argument that diversification reduces the value of companies. However, the finding is consistent with the argument that high control rights of controlling owner might encourage expropriation of minority interests through corporate diversification strategies.Thus, corporate diversification in Malaysia is perceived as a mixed blessing strategy

Sustainability reporting practices in the energy sector of Bangladesh

Energy is a key component of production. In order to promote economic growth in a country, adequate supply of energy is pivotal. On the other hand, this sector is considered sensitive in terms of environmental and social sustainability. This article aims to depict the extent of sustainability-related reporting practices in 19 companies operating in the energy sector of Bangladesh through analyzing data from 2011 to 2017 from their annual reports. Besides, a few factors affecting the level of such disclosure have been considered using regression model. Legitimacy theory has been discussed as underpinning theory and some other previous studies have been consulted. Findings show that the level of sustainability related reporting practices in the sector is dismal, though positively influenced by ownership structure, media visibility, and characteristics of directors of the company. Policy implications are discussed

Corporate governance: Can creditors fit in with companies' board of directors?

How do suppliers of finance make sure that firm managers enforce credit contracts, or do not invest in bad projects? This approach is missing in corporate governance research. To bridge the gap, we take steps towards developing a stakeholder perspective with the focus on examining the effects of creditor participation in a firm’s top decisions, in relation to board performance.Based on a sample of 154 questionnaire survey responses from Nigerian public firms, after relating all measured items to every construct in the statistical tests of exploratory factor analysis (EFA), we employed the use of confirmatory factor analysis (CFA) in a structural equation modelling (SEM) approach for an in-depth analysis to estimate how well the stakeholder model fits the data. Building upon the construct creditor participation, and based on the proposed theory, we confirmed three dimensions – protect risk projects, protect collateral, and enforce contracts – to be confirmed measures of the latent construct.Significant creditors such as banks interfering in the firm’s board, especially in major board decisions, can reduce the potentials of managers to engage in high-risk projects. This has significant positive effects on the board’s role performance.However, items in the two dimensions – protect collateral and enforce credit contracts show weak measurements after EFA. The consequences are a new research agenda for boards has been set.The agenda will focus on the suppliers of debt finance, as significant to the firms akin with their equity shareholders’ counterparts. This will create knowledge; reduce conflicts of interests, and exploitation; and ensure equitable distribution of firm value.The approach exposes firms to access more inclusive strategic inputs especially on important and less risky projects that will yield better margin and sustainable growth. This may stimulate further debates on other stakeholder researches that are vital to debt financiers and boards, thus becoming actionable for practitioners in decisions on projects

Corporate social disclosure quantity and quality as moderators between corporate social responsibility performance and corporate financial performance

Corporate social responsibility performance and corporate financial performance has been extensively examined without any consensus about the relationship.While some reported positive, others reported negative, neutral and even inconclusive findings on the relationship.These reasons make the topic an avenue for debates over a long period.This development call for the introduction of moderating variables to account for when and under what conditions is the relationship positive, negative or neutral/inconclusive.This study proposes to provide a framework that examines the association between CSR and CFP, promoting a potential moderator, CSR disclosure.Based on the literature reviewed, this paper proposes three variables which can be used to implement the framework within firm level.The variables are corporate social responsibility performance, corporate financial performance and corporate social disclosur

Audit Committee Characteristics and Voluntary Disclosure: Evidence from Malaysian Listed Firms

Global economic crisis in 2008 has increased the focus on the role of audit committee in ensuring integrity and transparency in corporate reporting. Audit committee characteristics are crucial in determining the ability of audit committee in carrying out its responsibilities effectively. Hence, this study aims to investigate the contribution of audit committee characteristics; independence, accounting expertise, multiple directorship, size, and diligence to audit committee effectiveness over corporate voluntary disclosure by Malaysian listed firms. The study uses 146 firms listed on Bursa Malaysia for the year 2006. The empirical results have revealed that proportion of independent directors, and number of directors on audit committee is significantly associated with corporate voluntary disclosure, and hence enhances audit committee effectiveness. The study contributes to the understanding of the association between audit committee characteristics and such committee effectiveness in respect to voluntary disclosure practices

The mediating effect of stakeholder influence capacity on the relationship between corporate social responsibility and corporate financial performance

Corporate social responsibility (CSR) and corporate financial performance (CFP) has been examined extensively in the literature.Majority of the studies suggested a positive relationship and few others found neutral, negative and/or curvilinear relationships.Hence this development calls for a mediating mechanism on the relationship between CSR and CFP.This paper proposes to provide a framework that explains how and why CSR leads to CFP by promoting a potential mediator namely stakeholder influence capacity (SIC).Based on the literature reviewed, this paper proposes three variables which can be used to implement the framework at firm level. The variables are corporate social responsibility, stakeholder influence capacity and corporate financial performance

Role of No-Voting shareholder activism in corporate governance in a developing Arab country

Because of agency conflict in firms with dispersed ownership, governance mechanisms to mitigate this agency cost, such as shareholders’ active monitoring of the firm’s management, have been developed. However, shareholder activism is contextual; therefore, the characteristics of shareholder activism in corporate governance practices in Libyan listed companies we explored. The data were collected from the 42 non-financial and 22 financial companies listed in the Libyan stock market during 2007–2016. Data envelopment analysis was done to generate an efficiency score based on corporate governance and shareholder activism. Linear regression analysis was used to determine whether a relationship exists between the efficiency of corporate governance and shareholder activism. All the companies were characterized by joint private-government ownership. The companies had an average corporate governance index of 2.24. Implementation of the Libyan good corporate governance practices is anticipated to give a score ≥ 2.95.Vote “No” shareholder activism targeting the boards of directors and their committees was the predominant form of shareholder activism (average number of annual events = 3.08) compared to shareholder proposal (average annual events = 1.67) and shareholder negotiation with management (average annual events = 1.6). Shareholder activism was more frequent in companies with low than with average governance scores compared to those with above-average governance scores. Moreover, the scores of shareholder activism were inversely related to corporate governance scores (r = –0.766, p < 0.01). Ordinary least-squares regression analysis revealed that a decrease in corporate governance score of one unit was associated with a 57% increase in shareholder activism (B = –0.57, F = 30.64, p < 0.01).Our study findings indicate that poor corporate governance practices do influence the frequency of shareholder activism in Libyan listed companies. Vote “No” activism is the most frequently used form of shareholder activism. The less frequent use of shareholder proposals and negotiation with management is probably related to legal and sociocultural factors