Board governance mechanisms, external assurance, and sustainability reporting quality: the moderating role of family-controlled firms

Abstract

The objective of this study is to examine the relationship between board governance mechanisms (i.e. female director leadership, board communication, board integrity, and political connection), external assurance, and Sustainability Reporting Quality (SRQ) in Malaysia. The study further examines the interacting effect of family controlled firms. The study employed the top 500 companies listed on the main board of Bursa Malaysia from 2015 to 2019. Descriptive statistics and panel data regression are utilized in this study. The results of the descriptive statistics indicate that the quality of sustainability disclosure has slightly improved, compared to the reports of previous Malaysian sustainability studies. Using Feasible Generalized Least Square (FGLS), the results showthat female director leadership, board communication, board integrity, politically connected firms, and external assurance are positively and significantly associated with SRQ. Therefore, the management of firms needs to consider these variables as they are highly useful especially in emerging economies with not very strong institutions. Further, interacting effects were found for family-controlled firms in the relationships between female director leadership, board integrity, politically connected firms, external assurance, and SRQ. While no interacting effect was found for family-controlled firms in the relationship between board communication and SRQ. The results of the study indicate that an effective board can help ameliorate agency issues thereby enhancing corporate reporting quality. Hence, compliance with Bursa Malaysia guidelines (e.g. the Practice Note 9 Updates) and the Malaysian Sustainability Reporting Guide could be reinforced to further increase the quality of sustainability disclosures in Malaysia. The findings provide valuable input for the management of corporate organizations in their unrelenting efforts to remain competitive and satisfy the needs of stakeholders as a means of better performance and corporate legitimization