How MCCG 2012 impacted board independence and firm performance in Malaysia: A proposed analysis

• Main Authors: Rahman, Haseeb Ur, Ibrahim, Mohd Yussoff, Che Ahmad, Ayoib
• Format: Article
• Language: English
• Published: Universal Publishers - Boca Raton, Florida, USA 2015
• Subjects: HD28 Management. Industrial Management
• Online Access: http://repo.uum.edu.my/16176/1/81.pdf; http://repo.uum.edu.my/16176/; http://www.gbmr.ioksp.com/vol7no1.htm

Purpose: The renowned agency theory and Corporate Governance (CG) codes around the world advocate independence of corporate boards.It is a common belief of the public, investors, regulators and policy makers that CG regulations strengthen independence of the board which improves firm performance.Hence, this paper proposes to test the common belief by examining the relationship between board independence as recommended by the recently introduced CG code (MCCG 2012) in Malaysia and financial performance of the listed companies from 2010 to 2013 in pre and post context of the code.Design/methodology/approach: This theoretical paper proposes to examine the impact of CG regulation (MCCG 2012) regarding board independence (separate leadership structure, proportion of independent non-executive directors on the board and independent chairman) on firm performance by using Ordinary Least Square (OLS) for a stratified random sample of 270 companies from all sectors of the Malaysian economy except banks and insurance companies. Findings/ highlights: The proposed study will provide empirical evidence to the inconclusive debate regarding the relationship between board independence and firm performance in the context of regulatory intervention (MCCG 2012).The study will also fill the literature gap as MCCG 2012 or any of its recommendation in relation to firm performance is yet to be investigated in Malaysia.Practical implications: The recommendations of MCCG 2012 regarding board independence (separate leadership structure, proportion of independent directors and independent chairman) are voluntary (comply or explain) and not part of the mandatory listing requirements of Bursa Malaysia yet.Thus, the empirical findings of the proposed investigation will help reduce the level of disparity between MCCG 2012 and mandatory listing requirements of Bursa Malaysia. Originality/value: The proposed study has value for policy makers, regulators, banks, Bursa Malaysia, shareholders, securities commission and government in Malaysia by knowing the impact of MCCG 2012 on board independence and its relation with firm performance.