THE EFFECT OF AUDIT COMMITTEE COMPETENCIES ON CORPORATE DISCLOSURE TRANSPARENCY: EVIDENCE FROM GOVERNMENT LINKED COMPANIES IN MALAYSIA

• Main Author: MUHAMMAD IQMAL BIN A MANAP
• Format: text::Thesis
• Language: English
• Published: Muhammad Iqmal Bin A Manap 2023

The propagation of corporate collapses as well as the occurrence of the financial crisis in 1997/1998 and the latest during 2008 have increased the focus on the role of competent audit committee in ensuring transparency in corporate reporting. Competent audit committee is integral to modem organisations and it is crucial in determining the ability of competent audit committee in performing its responsibilities effectively. Although this domain is receiving increased scrutiny, most studies have been based on associating general definition of competencies to corporate disclosure transparency. They simply used experience as a proxy to measure competencies without further exploring in depth on a more reliable measure of competencies. By delving the issue of competencies and transparency in the Malaysian case, there is an evidence of the lower level of transparency in corporate reporting among Malaysian firms. Further, the existence of a strong government's involvement in Government Linked Companies due to a significant government ownership has caused the position of directors including audit committees are frequently occupied by politicians who may not possess sufficient competencies. Consequently, the improvement on corporate disclosure transparency in Government Linked Companies does not appear to be priority. Considering the importance of competencies on the effectiveness of the audit committee, this study primarily analyses the relationship between audit committee competencies and corporate disclosure transparency of Malaysian Government Linked Companies. The competencies examined in details are expertise, advanced academic qualification, training and multiple directorships. Regarding expertise, it is divided into accounting financial experts, finance experts and supervisory experts. To achieve this objective, a quantitative-positivist approach has been adopted in this study wherein 176 aggregate disclosure items, comprising of 110 mandatory items and 66 voluntary items were designed. The annual reports, integrated annual reports and sustainability reports of 10 Government Linked Companies for the period of 2009-2017 were used to collect relevant data. Two theories have been drawn in this study, namely, agency theory and resource dependence theory to form the framework and develop the hypotheses. Overall, the results show that the extent of mandatory, voluntary as well as aggregate disclosures of Government Linked Companies are 93%, 61% and 81%, respectively. Although the overall extent of voluntary disclosures is moderately low, there is an increasing trend in the level of voluntary disclosure practice over a nine­ year period. Using multiple regression analysis on data collected, the results show that accounting financial experts, finance experts and advanced academic qualification have a significant positive influence on the corporate disclosure transparency. However, there is no evidence that supervisory experts, training and multiple directorships affect corporate disclosure transparency. The outcomes of this study may assist the Malaysian government and regulators to monitor and strengthen enforcement mechanisms in Malaysia. They may impose penalties for those companies contravene the reporting requirements. Further, it would also give them a signal to acknowledge other relevant audit committee competencies as a prerequisite for audit committee memberships. Next, it contributes to theory by introducing broader definition of competencies, proposing the aggregate disclosure index and proving the applicability of agency theory and resource dependence theory, which provides a basis for future hypothesis testing and theory building to identify more consistent relationships between audit committee competencies and corporate disclosure transparency.