The association between corporate governance attributes and voluntary disclosure: evidence from Malaysia

Citation

(2009), "The association between corporate governance attributes and voluntary disclosure: evidence from Malaysia", Journal of Accounting & Organizational Change, Vol. 5 No. 4. https://doi.org/10.1108/jaoc.2009.31505dad.002

The association between corporate governance attributes and voluntary disclosure: evidence from Malaysia

Article Type: Doctoral research abstracts From: Journal of Accounting & Organizational Change, Volume 5, Issue 4

Purpose – The purpose of this thesis is to examine the association between corporate governance attributes and voluntary disclosure in the Malaysian capital market after the 1997 financial crisis. It assesses whether the new corporate governance code introduced by the regulatory authorities following the financial crisis had any impact on the level of voluntary disclosure. Research had been conducted prior to the financial crisis in the Malaysian capital market when corporate governance was not an issue. Malaysia is of interest not only because it is a developing country with an emerging capital market, but also because there is considerable cultural diversity based on ethnicity, religion, and language. There has been no systematic empirical study carried out to examine the association between corporate governance and disclosure comprehensively in the Malaysian capital market since the Asian financial crisis. The introduction of new corporate governance codes following the financial crisis presents an interesting opportunity to study the proximate effect of mandated corporate governance practices on the level of voluntary disclosure. The corporate governance attributes are considered a potentially effective mechanism for aligning the divergence of interest between the shareholders and managers. This mechanism will mitigate the agency costs by deterring the managers from withholding information. This study examines how the agent's interests are aligned with shareholders' interests through relevant corporate governance attributes.

Design/methodology/approach – The primary purpose of this study is to assess the association between corporate governance attributes and voluntary disclosure in Malaysia. For the purposes of this research, additional sub-objectives are developed as part of main objective as follows: to develop a schema containing sub-categories of voluntary disclosure (strategic information, financial information, and corporate social responsibility information); to select a set of corporate governance attributes from board composition, ownership structure, and ethnicity perspective; and to provide evidence on the relationship between corporate governance attributes and the extent and nature of corporate disclosure. Multiple regression analysis is used to assess the association between corporate governance attributes and voluntary disclosure. The data used in testing the hypotheses consists of all the Malaysian non-finance publicly listed companies on the main board in terms of market capitalization for the period of 2001. The dependent variable in this study is voluntary disclosure and the independent variables are the corporate governance attributes of CEO duality; proportion of independent directors on the board; proportion of independent directors on the audit committee; an independent chairman on the board; proportion of Bumiputra directors on the board; proportion of Bumiputra chairman on the board; existence of Bumiputra CEO; government share ownership; share ownership concentration; and executive director share ownership.

Findings – The regression analysis of the top 500 companies listed on the Kuala Lumpur Stock Exchange indicates that CEO duality is negatively associated with the level of voluntary disclosure. It is found that there is a positive relationship between the proportion of independent non-executive directors on both the board and the audit committee and voluntary disclosure. Additionally, it is revealed that there are some companies that do not have independent directors on their board or audit committee. Further, the existence of an independent chairman on the board is also positively associated with the level of voluntary disclosure. Moreover, executive director share ownership is also negatively associated with voluntary disclosure. Finally, the presence of strong governance attributes and an improved regulatory environment enhances the strength of the association between the proportion of independent directors and the level of disclosure.

Originality/value – This study has both theoretical and practical implications. From a theoretical perspective, it enhances understanding of the relationship between corporate governance attributes and agency costs. The study also offers useful insights to policy makers and regulators to facilitate their evaluation of the effectiveness of the new corporate governance code. There are limitations inherent in this study. This study is primarily based on companies' annual reports. The lack of publicly available information on Malaysian listed companies restricted the chosen methodology.

Keywords: Corporate governance, Disclosure, Stock exchanges, Malaysia

Research type – Empirical

Award institute – La Trobe University, Australia

Supervisors – Professor Zahirul Hoque and Professor Kamran Ahmed

Contact e-mail – b.muniandy@latrobe.edu.au (Dr John Balachandran)

DOI: 10.1108/18325910910994720

Balachandran MuniandyFaculty of Law and Management, School of Accounting, La Trobe University, Melbourne, Australia