Dynamic Relationship between Corporate Governance and Firm Performance in Non-Financial Listed Firms in Malaysia

Muhammad Tahir, Khan (2018) Dynamic Relationship between Corporate Governance and Firm Performance in Non-Financial Listed Firms in Malaysia. PhD thesis, Universiti Malaysia Sarawak (UNIMAS).

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Abstract

The Malaysian economy is one of the rapidly growing economies in the world. The gap in knowledge has been identified concerning the different variables from the dynamic aspect regarding the relationship between corporate governance and firm performance, while taking the dynamic endogeneity in to account. In addition, this study specifically discussed on the failure of corporate governance that affects firm performance. This study also highlighted the challenges and recommendations that need to be improved. Enforcement and monitoring became the main hurdles in establishing the good corporate governance. There is a lack of research on the dynamic relationship between corporate governance mechanism and firm performance in the context ofMalaysia . The main aim ofthis study was to provide empirical evidence about the factors that influence the firm performance of listed companies in Malaysia. This study extends the literature by examining the impact ofcorporate governance mechanism on firm performance in a dynamic framework. Drawing on three key theoretical lenses, namely agency theory, stewardship theory and resource dependence theory, this study investigates an unexplored phenomenon in corporate governance reformation, in the context ofMalaysia . The study covers 226 listed companies on Bursa Malaysia for a period that extends from 2010 to 2015. The objectives ofthe study were achieved through the use of econometric model two-step system generalized methods of moments (GMM) and tests the seven hypotheses. In addition, diagnostic analysis and robustness checks reveal that the results are stable and reliable over the sample period. The analysis technique adopted by the study was a panel multiple regression analysis to examine the relationship between corporate governance mechanism and firm performance. The role of corporate governance was measured through the use of different attributes, i.e., board size, the percentage of nonIII executive directors, CEO duality, gender diversity, and ownership structure. In addition, the capital structure was incorporated through the inclusion of variables for analysis its impact on ftrm performance. On the other side of the equation is ftrm performance, which is taken as Tobin's Q and return on equity. Overall, the results ofthe study indicated that board size, CEO duality, gender diversity, and leverage have a profound influence on ftrm performance. While the study did not ftnd any signiftcant effect of non-executive directors and ownership structure on ftrm performance. The regression analysis reveals that board size and CEO duality has a signiftcant negative relationship with ftrm performance. On the other hand, non-executive directors and ownership structure were insignificantly related to frrm performance. Pursuant to agency theory, gender diversity and leverage has a significant positive impact on frrrn performance. Based on the findings, it is suggested that corporate governance mechanism has a significant impact on firm performance in Malaysia listed frrms. The implications of the study briefly describe the implications ofthe findings and the contribution ofthe study.

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