The relationship between corporate governance attributes and firm performance before and after the revised code

Abstract

Abstract Purpose This paper examines the impact of corporate governance attributes and ownership structure patterns on corporate performance of Malaysian listed companies following the revised code on corporate governance in 2007. To provide an insightful assessment on the revised code's implications on firm performance, data before (2006) and after (2009) the revised code in 2007 were analyzed. Design/methodology/approach The study involves analyses of 170 observations in a two-year period, 2006 and 2009. The sample of the study was selected on the basis of a stratified random sampling procedure to allow a representative sample of the various sectors listed on Bursa Malaysia. Based on data extracted from the annual reports of 2006 and 2009, corporate performance was captured using accounting performance indicators (return on assets and return on equity). In addition to descriptive analyses, multiple regression analysis was used to assess the influence of the governance and ownership structure attributes on firm performance. Findings The findings revealed a decreasing trend of the financial performance of the sample companies over the two-year period which this study attributes to the recent global financial meltdown. In terms of corporate governance compliance, the results showed that there were cases of non-compliance of the basic requirements of the corporate governance code in Malaysia even after the revised code in 2007. In addition, the multiple regression results showed that only board meetings had significant negative association with firm performance following the revised code. None of the other variables had significant impact on firm performance before and after the revised code. Firm size and leverage, as control variables, however, showed significant association with firm performance. Practical implications Given the lack of non-compliance by some of the sample companies in Malaysia to some basic requirements such as the required percentage of independent directors on corporate boards and the insignificance of governance attributes in enhancing performance, this study suggests that the revised code needs reinforcement, at best, or even an overhaul change to suit more to the Malaysian business environment. Originality/value In distinction from most prior studies, this study provides ex-ante and ex-post examination of the relationship between corporate governance and firm performance, following changes in the regulatory environment. Such analysis is expected to have some practical implications in indicating whether recent regulatory changes are practiced in the corporate environment. This study draws evidence from Malaysia in adding to our understanding on whether changes in regulatory frameworks enhance firm performance.

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