BOARD STRUCTURE AND FIRM PERFORMANCE OF FINANCIALLY DISTRESSED COMPANIES: EVIDENCE FROM MALAYSIA
DOI:
https://doi.org/10.55197/qjssh.v4i5.253Keywords:
board characteristics, financial performance, PN17 companies, MalaysiaAbstract
This study aims to investigate the connection between board composition and a company's financial performance. To determine whether board size, board independence, and board gender composition affect a company's financial performance, experiments on board size, board independence, and board gender composition were conducted. Considering the high level of family ownership in Malaysian publicly traded companies, the analysis presents data from a developing market. From 2018 to 2022, a sample of 25 PN17 publicly traded companies in Malaysia served as the basis for the study. A multiple regression analysis revealed that board size and gender composition positively and substantially correlate with financial performance; thus, appointing more female board members will improve the company's financial performance. Therefore, a business justification exists for the Malaysian government's effort to require publicly traded companies to have at least 30 percent female board members. Nonetheless, according to the study's findings, board independence does not affect corporate performance. Therefore, the appointment of independent board members will not affect the economic performance of the companies.
References
Abdullah, S.N., Aziz, A., Azani, A. (2022): The Effect of Board Independence, Gender Diversity and Board Size on Firm Performance in Malaysia. – Journal of Social Economics Research 9(4): 179-192.
Adams, R.B., Ferreira, D.F. (2009): Women in the boardroom and their impact on governance and performance. – Journal of Financial Economics 94(2): 291-309.
Adeabah, D., Gyeke-Dako, A., Andoh, C. (2019): Board gender diversity, corporate governance and bank efficiency in Ghana: a two stage data envelope analysis (DEA) approach. – Corporate Governance: The International Journal of Business in Society 19(2): 299-320.
Aggarwal, R., Jindal, V., Seth, R. (2019): Board diversity and firm performance: The role of business group affiliation. – International Business Review 28(6): 1p.
Ain, Q.U., Yuan, X., Javaid, H.M., Usman, M., Haris, M. (2021): Female directors and agency costs: evidence from Chinese listed firms. – International Journal of Emerging Markets 16(8): 1604-1633.
Arun, T., Almahrog, Y., Aribi, Z.A. (2015): Female directors and earnings management: Evidence from UK companies. – International Review of Financial Analysis 39: 137-146.
Brunninge, O., Nordqvist, M., Wiklund, J. (2007): Corporate governance and strategic change in SMEs: The effects of ownership, board composition and top management teams. – Small Business Economics 29(3): 295-308.
Darrat, A.F., Gray, S., Park, J.C., Wu, Y. (2016): Corporate Governance and Bankruptcy Risk. – Journal of Accounting, Auditing & Finance 31(2): 163-202.
Daily, C.M., Dalton, D.R. (2003): Women in the boardroom: A business imperative. – Journal of Business Strategy 24(5): 2p.
Daily, C.M., Dalton, D.R. (1994): Bankruptcy and corporate governance: The impact of board composition and structure. – Academy of Management Journal 37(6): 1603-1617.
Dicuonzo, G., Donofrio, F., Ranaldo, S., Dell’Atti, V. (2022): The effect of innovation on environmental, social, and governance (ESG) practices. – Meditari Accountancy Research 30(4): 1191-1209.
Esmael, A.F., Ismail, Y.M., Elhusseiny, A.M., Fayed, A.E., Elhilali, H.M. (2019): Agreement profiles for rebound and applanation tonometry in normal and glaucomatous children. – European Journal of Ophthalmology 29(4): 379-385.
Fama, E.F., Jensen, M.C. (1983): Separation of Ownership and Control. – The Journal of Law and Economics 26(2): 301-325.
García, C.J., Herrero, B. (2021): Female directors, capital structure, and financial distress. – Journal of Business Research 136: 592-601.
Griffin, R.W., Pustay, M.W. (2015): International Business: A Managerial Perspective. – Pearson Education 624p.
Guizani, M., Abdalkrim, G. (2023): Does gender diversity on boards reduce the likelihood of financial distress? Evidence from Malaysia. – Asia-Pacific Journal of Business Administration 15(2): 287-306.
Gupta, V., Mortal, S., Chakrabarty, B., Guo, X., Turban, D.B. (2020): CFO Gender and Financial Statement Irregularities. – Academy of Management Journal 63(3): 802-831.
Gul, F.A., Srinidhi, B., Ng, A.C. (2011): Does board gender diversity improve the informativeness of stock prices? – Journal of Accounting and Economics 51(3): 314-338.
Idris, A.M., Ousama, A. (2021): The Impact of Board Independence, Gender Diversity and Nationality Diversity on Firm Performance. – Asia-Pacific Management Accounting Journal 16(1): 323-346.
Jensen, M.C., Meckling, W.H. (2019): Theory of the firm: Managerial behavior, agency costs and ownership structure. – In Corporate Governance, Gower 55p.
Jensen, M.C. (1993): The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems. – Journal of Finance 48(3): 831-880.
Kao, M., Hodgkinson, L., Jaafar, A. (2019): Ownership structure, board of directors and firm performance: evidence from Taiwan. – Corporate Governance 19(1): 189-216.
Karim, K.E., Li, J., Lin, K.J., Robin, A. (2022): Do directors have style? Board interlock and accounting properties. – Journal of Business Finance & Accounting 49(1-2): 3-32.
Khan, S., Kamal, Y., Abbas, M., Hussain, S. (2022): Board of directors and earnings manipulation: evidence from regulatory change. – Future Business Journal 8(1): 1-22.
Kumar, A. (2023): Mastering f-statistics in Linear Regression: Formula, Examples-Data Analytics. – Data Analytics Official Portal. Retrieved from:
https://vitalflux.com/interpreting-f-statistics-in-linear-regression-formula-examples/
Lipton, M., Lorsch, J.W. (1992): A modest proposal for improved corporate governance. – The Business Lawyer 18p.
Malaysian Code on Corporate Governance (MCCG) (2021): Malaysian Code on Corporate Governance. – Securities Commission Malaysia 68p.
Manaf, S.M.A., Amzah, N.F.H., Salleh, W.N.W. (2021): An Investigation of Factors Affecting Financial Distress: Analysis Among PN17 Companies in Bursa Malaysia. – Insight Journal 8: 182-198.
Mariano, S.S.G., Izadi, J., Pratt, M. (2021): Can we predict the likelihood of financial distress in companies from their corporate governance and borrowing? – International Journal of Accounting and Information Management 29(2): 305-323.
Merendino, A., Melville, R. (2019): The board of directors and firm performance: empirical evidence from listed companies. – Corporate Governance: The International Journal of Business in Society 19(3): 508-551.
Mohammed, A.A.E. (2012): Financial situation of PN17 companies listed in the Malaysian Stock Exchange. – Universiti Tun Hussein Onn Malaysia 97p.
Nguyen, A.V., Doan, D.T.H., Nguyen, L.A. (2020): Corporate Governance and Agency Cost: Empirical Evidence from Vietnam. – Journal of Risk and Financial Management 13(5): 15p.
Okoyeuzu, C., Ujunwa, A., Ujunwa, A.I., Onah, E.O. (2021): Independent board, gender diversity and bank performance in Nigeria: a system-GMM approach. – Gender in Management: An International Journal 36(6): 677-696.
Ozili, P.K. (2020): COVID-19 in Africa: socio-economic impact, policy response, and opportunities. – International Journal of Sociology and Social Policy 42(3/4): 177-200.
Potharla, S., Amirishetty, B. (2021): Non-linear relationship of board size and board independence with firm performance-evidence from India. – Journal of Indian Business Research 13(4): 503-532.
Rohan, A. (2022): How the COVID-19 pandemic changed society - News. – UAB News. Retrieved from:
https://www.uab.edu/news/youcanuse/item/12697-how-the-covid-19-pandemic-changed-society
Shahimi, W.R.M.A., Hanafi, A.H.A., Mohamad, N.A. (2021): THE IMPACT OF COVID-19 ON THE FINANCIAL PERFORMANCE OF PN17 AND GN3 STATUS FIRMS: DOES IT ADD SALT INTO THE WOUND? – Advanced International Journal of Banking, Accounting and Finance 3(7): 47-58.
Shayan-Nia, M., Sinnadurai, P., Mohd-Sanusi, Z., Hermawan, A.N.A. (2017): How efficient ownership structure monitors income manipulation? Evidence of real earnings management among Malaysian firms. – Research in International Business and Finance 41: 54-66.
Shikalepo, E.E. (2020): Defining a conceptual framework in educational research. – Namibia University of Science and Technology 7p.
Statistics Solutions Official Portal (2023): Spotting the odd ones out: Identifying outliers in SPSS. – Statistics Solutions Official Portal. Retrieved from:
https://www.statisticssolutions.com/identifying-outliers-in-spss/
Warrad, L., Khaddam, L. (2020): The effect of corporate governance characteristics on the performance of Jordanian banks. – Accounting 6(2): 117-126.
Younas, N., UdDin, S., Awan, T., Khan, M.Y. (2021): Corporate governance and financial distress: Asian emerging market perspective. – Corporate Governance: The International Journal of Business in Society 21(4): 702-715.
Zaid, M., Wang, M.P., Abuhijleh, S.T.F., Issa, A.A., Saleh, M.F., Ali, F. (2020): Corporate governance practices and capital structure decisions: the moderating effect of gender diversity. – Corporate Governance 20(5): 939-964.
