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THE IMPACT OF CORPORATE GOVERNANCE ON FRIM
PERFORMANCE: EVIDENCE FROM MALAYSIA
SKRIPSI
Submitted As Partial Fulfillment Of Requirement For The Degree of Sarjana
Ekonomi (SE) at the Sebelas Maret University
By:
RAHMAH FITRIANI
F0308007
FACULTY OF ECONOMICS
SEBELAS MARET UNIVERSITY
SURAKARTA
2012
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ABSTRACT
THE IMPACT OF CORPORATE GOVERNANCE ONFIRM
PERFORMANCE: EVIDENCE FROM MALAYSIA
Rahmah Fitriani
NIM F0308007
The objective in this research is to investigate the impact of corporate governance mechanisms on firm performance in Malaysia. Specifically, this research examines the effect of chairman characteristics, board structure, independent committees, and family control on return on assets.
This research focuses on manufacture companies that listed in Bursa Malaysia Berhad for period 2010. The research data were collected from financial statements and annual reports which published by companies. Purposive sampling method was used to determine research sample and 200 samples were collected. Hypothesis was tested by Ordinary Least Square (OLS) regression model using SPSS 17.00 software
The results of this research show that corporate governance mechanism simultaneously impact on return on assets. Only board meetings that partially and significantly had effect on return on assets. Additionally, the interaction between chairman tenure and chairman executive partially and significantly had effect on return on assets. Keywords: Corporate Governance, Chairman Characteristics, Board Structure, Independent Committees, Family Control, Firm Performance.
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MOTTO
· “If you ask, ask Allah. If you seek help, seek help from Allah.”
(Prophet Muhammad SAW)
· “Be, and It is.” (QS 36:82)
· “Remembrance of death saves one from this world’s deceit.” (Ali RA)
· “Wasting time is worse than death, because death separates you from
this world whereas wasting time separates you from Allah.” (Ibn
Qayyim)
· “The only way to live is to put in effort.” (Baekhyun, EXO-K member)
· “Don’t ask Allah to make your life easier. Instead ask Allah to make
you a stronger person.”
· “Hope for the best, plan for the worst” (The Bourne Ultimatum)
· Man Jadda Wajadda (Negeri 5 Menara)
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DEDICATION
This work and all things that I achieved,
Truly I dedicated to:
My Beloved Family
For all supports and love and everything for me.
I love you.
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ACKNOWLEDGEMENT
Assalamu’alaikum Wr. Wb.
Researcher will be grateful to Allah SWT for all the mercy and bless so
that she was able to finish this research well. This Skripsi is proposed to complete
all the requirements of achieves the degree of Sarjana Ekonomi of Accounting
Department, Sebelas Maret University, Surakarta.
Researcher realizes that she could not have finished this skripsi without the
supports and involvement of many parties both directly and indirectly. I owe a
very great debt and thanks to:
1. Dr. Wisnu Untoro, M.S., as the Dean of Economics Department, Sebelas
Maret University, Surakarta.
2. Drs. Santoso M.Si., Ak., as the Head of Accounting Department,Sebelas
Maret University, Surakarta.
3. Drs. Muh Agung Prabowo, M.Si., Ph.D, Ak., as my supervisor. I wish to
express my deepest thanks to Mr. Agung for his considerable help to give
advices and a very closely improved result.
4. Dra. Muthmainah, M.Si., Ak., as my academic advisor, thanks for all your
support and advices.
5. My beloved family. Ibu, ibu, ibu. Ibu for my number one inspiration and my
spirit and all things that I can’t express. I love you, bu, I really do. Bapak,
who always give the biggest support, I love you and thank you. My sister
Rina, don’t forget to study hard okay? I love you.
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6. My other family; Mama, Ayah, Rizky, and Faiz. Mami, Mas Arhan and
Ravin. I love you and thank you.
7. All lectures and staff in Faculty of Economics, Sebelas Maret University who
have provided knowledge, guidance, and service.
8. My TILEND friends; Dyla, Mita, Rintan, Weni, Shali, Aruf, Ridwan, Andit,
Risal, Dani who always brighten my days with all cheerfulness, stupidity and
our friendship. TILL END, friends!
9. My friends Nita (you know we will never end!), Anes (thank you for all you
help^^), Sinta (when will you married?) and Hilda (thank you for
everything!). Hope you guys won’t forget me and forget our stories.
10. My Dzakia Mumtaz partners; Ajeng (someday you will meet M and C, trust
me, and don’t forget our plan to attend SMTown), Oki (thank you for all
things we disscuss through bbm and I hope you will find your soulmate very
soon! P.s: SMTown, we need to attend it), Juma (you’re good, you’re the
best! I’ve learned a lot from you), and Priska although she graduated earlier.
And for the rest of Dzakia Mumtaz’s members, thank you.
11. My partner in crime, Muh Andi DHBA, finally we made it!
12. My friends Akuntansi 2008; Ayuk, Ocha, Windi, Wulan, Eva, Denny, Berlin,
Evy, Sharin, and all of Akuntansi 2008 crew.
13. All of my friends in HMJ Akuntansi, especially HMJ 2008, thank you :)
14. My tlist on my 2nd account and 3rd twitter account, thank you very much for
bring lot laughter to me! For Yesa, you’re the Kyungsoo to my Kaisoo :)
don’t fell asleep again when you’re in the middle of exams okay?
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15. SNSD and EXO, for accompany me through these difficult days. Tiffany
unnie, the shining smile, who taught me how to be a good person (because
you have an angelic heart) and Baekhyun, who taught me not to give up on
my dreams. We will meet someday, I do believe that!
16. My blue blitz and my pink toshiba… you’re rock!
17. For all people that Researcher could not mention one by one, I thank for all
your support in the last four years.
Researcher realizes that this research is far from being perfect. This study
has a lot of constraint, thus any suggestions and critics are expected for the sake of
improving this study.
As I close this acknowledgment, I expect that this writing will be useful to
all parties.
Wassalammu’alaikum Wr. Wb
Surakarta, July 22 , 2012
Rahmah Fitriani
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TABLE OF CONTENTS
Page
PAGE OF TITLE ............................................................................. i
ABSTRACT ..................................................................................... ii
PAGE OF ADVISOR’S APPROVAL.......................... ................... iii
PAGE OF APPROVAL ................................................................... iv
PAGE OF MOTTO .......................................................................... v
PAGE OF DEDICATION ............................................................... vi
ACKNOWLEDGEMENT ............................................................... vii
TABLE OF CONTENT ................................................................... x
LIST OF TABLES ........................................................................... xiii
LIST OF APPENDIXES .................................................................. xiv
CHAPTER 1 INTRODUCTION ................................................... 1
A. Background ........................................................................ 1
B. .................................................................................... Problem
Statements .......................................................................... 3
C. Research Objectives ........................................................... 3
D. Research Benefits .............................................................. 5
E. Organization of Literature ................................................. 6
CHAPTER II THEORETICAL FRAMEWORK .......................... 7
A. Agency Theory .................................................................. 7
B. Corporate Governance ....................................................... 8
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C. Return on Assets ................................................................ 9
D. Hypothesis Development ................................................... 10
CHAPTER III RESEARCH METHODS ...................................... 16
A. Research Design ................................................................ 16
B. Population and Sample ...................................................... 17
C. Source and Data Collecting Technique ............................. 17
D. Operational Definition and Measurement of Variables ..... 18
1. ................................................................................. Independent
Variables ....................................................................... 18
2. ................................................................................. Dependent
Variable ......................................................................... 19
3. ................................................................................. Control
Variables ....................................................................... 20
E. Data Analysis Methods ...................................................... 20
1. ....................................................................................... Classic
Assumption Test............................................................ 20
2. ....................................................................................... Descriptive
Statistics and Univariate ................................................ 22
3. ....................................................................................... Multivariate
....................................................................................... 22
CHAPTER IV DATA ANALYSIS ............................................... 24
A. Total Data Collection ......................................................... 24
B. Classic Assumption Analysis............................................. 25
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C. Descriptive Statistics and Univariate ................................. 25
D. Multivariate ....................................................................... 30
1. ................................................................................. The Impact of
Corporate Governance on
Return on Assets ........................................................... 30
2. ................................................................................. The Interaction
of Corporate Governance on
Return on Assets .......................................................... 34
CHAPTER V CONCLUSION ....................................................... 40
A. Conclusions ........................................................................ 40
B. Research Constraints ......................................................... 41
C. Research Suggestions ........................................................ 42
REFERENCES................................................................................. 43
APPENDIXES
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LIST OF TABLES
TABLE PAGE
IV.1 Sample Selection…………………………………………… 23
IV.2 Variable Definition…………………………………………. 25
IV.3 Descriptive Statistics ……………………………………….. 26
IV.4 Pearson Correlation………………………………………… 28
IV.5 Linear Regression (A)………………………………………. 35
IV.6 Linear Regression (B)……………..………………………… 36
IV.7 Regression with Interaction Effect (A)……………………… 37
IV.8 Regression with Interaction Effect (B)…………….………… 38
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LIST OF APPENDIXES
Appendix I Previous Studies
Appendix II List of Companies
Appendix III Corporate Governance and Return on Assets
Appendix IV Results of Linear Regression
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ABSTRACT
THE IMPACT OF CORPORATE GOVERNANCE ONFIRM PERFORMANCE:
EVIDENCE FROM MALAYSIA
Rahmah Fitriani
NIM F0308007
The objective in this research is to investigate the impact of corporate governance mechanisms on firm performance in Malaysia. Specifically, this research examines the effect of chairman characteristics, board structure, independent committees, and family control on return on assets.
This research focuses on manufacture companies that listed in Bursa Malaysia Berhad for period 2010. The research data were collected from financial statements and annual reports which published by companies. Purposive sampling method was used to determine research sample and 200 samples were collected. Hypothesis was tested by Ordinary Least Square (OLS) regression model using SPSS 17.00 software
The results of this research show that corporate governance mechanism simultaneously impact on return on assets. Only board meetings that partially and significantly had effect on return on assets. Additionally, the interaction between chairman tenure and chairman executive partially and significantly had effect on return on assets. Keywords: Corporate Governance, Chairman Characteristics, Board Structure, Independent Committees, Family Control, Firm Performance.
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CHAPTER I
INTRODUCTION
A. Background
Corporate governance is a system that aim and supervise firms and it
concerns the effects of board structure on a firm’s performance. Corporate
governance includes all needed mechanisms that discipline organizations and
ensure that the resources of the firm are managed efficiently.
Corporate governance has become an important issue in Malaysia since
the emergence of the Asia financial crisis in mid-1997. This crisis had been forced
some companies to liquidated because they could not lasted their business. This
crisis has taught corporate Malaysia that adding standards of corporate
governance can improve investor’s confidence and increase capital inflow to the
country.
The investors mostly use annual report in valuing financial performance.
Return on assets (ROA) comes as one of those methods to understand financial
performance of firms. ROA is an indicator of how profitable a company is relative
to its total assets. ROA gives an idea as to how efficient management is at using
its assets to generate earnings. ROA is calculated by dividing a company's annual
earnings by its total assets. ROA is displayed as a percentage. Sometimes this is
referred to as return on investment. Some investors add interest expense back into
net income when performing this calculation because they'd like to use operating
returns before cost of borrowing.
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Malaysia’s progress in strengthening its corporate governance framework
has received international recognition. Malaysia has consistently been ranked 4th
for investor protection in the World Bank Doing Business Report during 2006–
2010 (Malaysia Corporate Governance Blue Print 2011).
Bursa Malaysia underscores the importance of having independent
directors on boards by its Revamped Listing Requirements by ensuring the board
of directors of Malaysian public listed companies has a sufficient independent
element to safeguard the interest of investors. The role of independent directors on
the board of directors is to effectively monitor and control firm activities in
reducing opportunistic managerial behaviors and expropriation of firm resources
(Fama and Jensen 1983, Brickley et al. 1994).
Over the last three decades, corporate governance became an interesting
research issue for many researchers. Researchs on corporate governance had
evolved not only research on the implementation of GCG in the company but also
research on how far the companies disclose the corporate governance practices
within the company’s annual report. Corporate governance reporting is a report of
crucial information related to management, monitoring, transparency and
accountabilities which is presented to users of annual reports. With these kinds of
information the users will be able to distinguish between the good and the bad
company. Information about good corporate governance practices might help the
investor to invest their capital in the industries that have a low agency cost.
The Malaysian Code of Corporate governance states that good corporate
governance rests firmly with board of directors and the Code required at least one
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third of the board to comprise of independent directors. The term independent as
described by the Malaysian Governance Code refers to independence from
management and significant shareholders. The literature suggests that increases in
the proportion of outside directors on the board increases firm performance as
they can more effectively monitor managers (Adams and Mehran, 2003).
Previous empirical findings on the relationship between corporate
governance elements such as board leadership structure, board composition, board
size and ownership structure, and financial performance, have provided mixed
results. Numerous studies has evidenced that the proportion of independent
directors is correlated to firm performance (Agrawal and Knoeber 1996).
Companies with more independent directors tend to be more profitable than those
with fewer independent directors (You et al. 1986). There were other views which
are totally different. The relationship between the proportion of independent
director and firm performance was found to be negative (Klein 1998, Agrawal and
Knowber 1996, Yermack 1996).
The two main issues in this research are corporate governance and firm
performance. However, empirical evidences from previous research from several
countries about relationship between corporate governance and firm performance
are mixed. Hence it becomes very important to investigate the relationship
between corporate governance and firm performance in Malaysia especially with
their consistent rank on investor protection in the World Bank Doing Business
Report during 2006–2010.
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B. Problem statements
The problem statements for this study consists of:
1. Do chairman characteristics (chairman tenure, chairman financial
background and executive chairman) have impacts to return on assets?
2. Do board of directors (independent board, size of board and board meeting)
have impacts to return on assets?
3. Does committee independence (remuneration committee independence,
audit committee independence, and nomination committee independence)
have impacts to return on assets?
4. Does family controlling (family involvement on board and family
ownership on companies) have impacts to return on assets?
C. Research Objectives
Main objective in this study is to find empirical evidence about:
1. The impact of chairman tenure related to return on assets in Malaysian
companies.
2. The impact of chairman financial background related to return on assets in
Malaysian companies.
3. The impact of executive chairman related to return on assets in Malaysian
companies.
4. The impact of board director numbers related to return on assets in
Malaysian companies.
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5. The impact of board independence related to return on assets in Malaysian
companies.
6. The impact of board meeting related to return on assets in Malaysian
companies.
7. The impact of remuneration committee independence related to return on
assets in Malaysian companies.
8. The impact of nomination committee independence related to return on
assets in Malaysian companies.
9. The impact of audit committee independence related to return on assets in
Malaysian companies.
10. The impact of family involvement related to return on assets in Malaysian
companies.
11. The impact of family ownership related to return on assets in Malaysian
companies.
D. Research Benefits
1. Investors, this paper could enhance investors’ understanding on how
corporate governance affects firm performance.
2. Literature improvement about corporate governance, with large corporate
governance proxies; chairman characteristics which proxies as chairman
tenure, chairman financial background and executive chairman, board of
directors which proxies as independent board, size of board and board
meetings, adding committee monitoring which proxies as remuneration
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committee independence, audit committee independence and nomination
committee independence and family controlling on board which proxies as
family involvement in board and family ownership.
E. Organization of Skripsi
Chapter I : Introduction
This chapter contains introduction, problem statement, research
objectives, research benefits and organization of skripsi.
Chapter II : Theoretical Framework
This chapter contains literature review which leads the way to
hypotheses development and research model.
Chapter III : Research Method
Population, sample, measurements of variables and data
analysis method are discussed.
Chapter IV : Data Analysis and Interpretation
The comprehensive interpretation of result in descriptive
statistics and regression analysis are the body of this chapter.
Chapter V : Conclusion
This chapter presents the research result in broad outline. It
discloses research constrains and future research suggestion.
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CHAPTER II
THEORITICAL FRAMEWORK
A. Agency Theory
The perspective of agency relationship is the basic principle to understand
how corporate governance works. Agency theory stated that an agency
relationship exists whenever one or more individuals (principals) hire another
person (agent) to perform a service where individuals are motivated solely by self-
interest (Jensen and Meckling, 1976). Agency theory explaining the relationship
between the company’s executives as an agent with the shareholder or owners as
an principal. The relationship between shareholders and company managers is
accompanied by conflicting interests. This is the result of a separation of
ownership and control, different objectives and an information asymmetry
between managers and shareholders. Managers have the incentive and capability
of working in line with their personal interests. As a result, their actions and
decisions don’t necessarily maximize the wealth and utility of the owners
(Sarikhani and Ebrahimi, 2011).
Agency relationships rely on the contract as the first best solution in order
to mitigate the divergence of interests between those of contracting parties (Hart,
1995). Therefore contracts are written, often containing accounting based
constraints especially earnings, to restrict manager’s value reducing behaviors.
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Considering the fact that signing these contracts and following their clauses are
costly (Warfield et al., 1995) and not enough to align the interests of the managers
and the owners, the shareholders have the necessary incentive to create solutions
to supervise the activities of the managers and monitor their opportunistic
behavior. Therefore, the issue of solutions for company governance can be
mentioned as another solution in the line of reducing representative conflicts (Dey,
2008).
B. Corporate Governance
Corporate governance is a system to aim and to supervise a company.
Corporate governance is primarily concerned with how equity investors induce
managers to provide them with an appropriate return on their invested capital
(Cook, Hogan and Kieschnick, 2003). Corporate governance distributed the rights
and the responsibilities between parties such as directors, managers, shareholders,
officers, and other, and to explain the rules and procedure to make decisions.
Effective monitoring from internal corporate governance is very important
to ensure reliable and complete financial report. Since earnings management
misleads users of financial statements by providing them with false information
about firm’s true operating performance, the internal corporate governance serves
a monitoring role in constraining the occurence of earnings management (Chen et
al, 2006). The implementation of corporate gorvernance mechanism in company
could protect investor and creditor from management opportunistic behavior. This
mechanism can be internal mechanism and external mechanism.
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C. Return on Assets
ROA is an indicator of how profitable a company is relative to its total
assets. ROA gives an idea as to how efficient management is at using its assets to
generate earnings. ROA is calculated by dividing a company's annual earnings by
its total assets. ROA is displayed as a percentage. Sometimes this is referred to as
return on investment. Some investors add interest expense back into net income
when performing this calculation because they'd like to use operating returns
before cost of borrowing.
Return on assets is use to measure firm performance. Empirical researches
on corporate governance use either market-based measures or accounting-based
measures to assess firm performance. Klein (1998) uses return on assets (ROA)
and Lo (2003) uses return on equity (ROE) as an operating performance indicator.
Brown and Caylor (2005) use ROE and ROA as their two operating performance
measures. Managers are directly responsible for the operations of the business and
therefore the utilization of the firms’ assets. Thus, return on assets allows users to
assess how well a firms’ CG mechanism is in securing and motivating efficient
management of the firm. In the present study, return on assets is defined as net
income before interest expense for the fiscal period divided by total assets for that
same period (Barro, 1990 and Angbazo and Narayanan, 1997).
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D. Conceptualization And Hypotheses Development
Chairman Characteristics
Chairman knowledge and experience are significant elements in making
sure the effectiveness of board monitoring function. CEO characteristic is an
importance aspect of corporate governance and corporate governance reporting
(Shen 2003). The difference stages of CEO tenure would influence either CEO
leadership development or control of managerial opportunism. According to
Gabarro (1987), new CEOs normally need one or two years to acquire needed task
knowledge before they can take major actions to reshape their organizations. It
takes additional time for these actions to show substantial impacts on their firms'
competitive positions in the market and financial returns. Thus, the newly
appointed CEO of the company will seek to reveal (disclose) more about
corporate governance practices. In other words, CEOs with shorter tenure will
perform control towards the important informations as their contribution to the
corporate.
Tyler and Steensma (1998) and Barker and Mueller (2002) find that the
type of degree that the CEO holds has an impact on the firms’ research and
development funding. For example, Graham, Harvey and Rajgopal (2005) find
that CEOS holding MBAs were more likely than other executives to use
techniques such as net present value (NVP) for capital budgeting and the capital
asset pricing in cost of capital calculations. Hence,the type of degree that the CEO
holds has an impact to firm’s performance.
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Agency theory suggests separation of duties may lead to efficient
monitoring over the board process (Fama and Jensen, 1983). The involvement of a
chairman on board, either as director or chairman may create bias and
inappropriately influence board decisions. Similarly, conflicts of interest may
occur if a chairman is also an executive who is involved in the company
management (Ismail et al., 2010). In such a firm, the executive chairman has more
power over the board and firm without being supervised and evaluated. Jensen
(1993) claimed that boards are less effective when the chief executive officer is
also the chairman. Thus the following hypothesis is developed:
H1a : Chairman tenure is related to return on assets.
H1b : Chairman financial background is related to return on assets.
H1c : Executive chairman is related to return on assets.
Board of directors
Bursa Malaysia underscores the importance of having independent
directors on boards by its Revamped Listing Requirements by ensuring the board
of directors of Malaysian public listed companies has a sufficient independent
element to safeguard the interest of investors. The role of independent directors on
the board of directors is to effectively monitor and control firm activities in
reducing opportunistic managerial behaviors and expropriation of firm resources
(Fama and Jensen 1983, Brickley et al. 1994).
Numerous studies has evidenced that the proportion of independent
directors is correlated to firm performance (Agrawal and Knoeber 1996).
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Companies with more independent directors tend to be more profitable than those
with fewer independent directors (You et al., 1986). There were other views
which are totally different. The relationship between the proportion of
independent director and firm performance was found to be negative (Klein 1998,
Agrawal and Knowber 1996, Yermack 1996).
The Malaysian Code of Corporate governance states that good corporate
governance rests firmly with board of directors and the Code required at least one
third of the board to comprise of independent directors. The term independent as
described by the Malaysian Governance Code refers to independence from
management and significant shareholders. The literature suggests that increases in
the proportion of outside directors on the board increases firm performance as
they can more effectively monitor managers (Adams and Mehran, 2003).
Board size is the number of directors on the board and an important factor
in the effectiveness of the board in making return on assets higher or lower.
Jensen (1993) opines that limiting board size improves firm performance because
the benefits by larger boards of monitoring are overshadowed by the poorer
communication and decision-making of larger groups.
Conger et al. (1998) views board meetings as an important resource in
improving the effectiveness of the board. Effectiveness of a board depends on
how often the board members meet to discuss the various issues facing a firm
(Vafeas, 1999).Increase in board meetings is considered to represent the intensity
of board activity. From the agency perspective, the main responsibility of the
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board is management monitoring to mitigate agency costs and appropriation by
the managers. Thus the following hypothesis is developed:
H2a : The proportion of board inpedendent is related to return on assets.
H2b: The total number directors on the board is related to return on
assets.
H2c : The total meeting is related to return on assets.
Independent Committee
The primary function of the audit committee is to review management
information, financial statements and internal control system (Klein, 1998). The
importance of audit committees as a corporate monitoring mechanism has been
emphasized by many researchers in recent years. Number of audit committee
meetings with impendent and financially literate directors will work as ineffective
monitor for the audit committee.
The presence of remuneration committee is consistent with agency theory,
which advocates the separation of management from control (Barkema and Mejia,
1998). The main function of remuneration committees is to determine and review
remuneration packages for senior management of the firm (Klein,1998). There has
been an increasing demand for greater accountability for remuneration (Bosch,
1995).
The ability of non-executive directors to perform the monitoring function
is related to their independence, which in turn is related to director selection by
the nomination committee (Conyon and Peck, 1998). The presence of independent
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nomination committe is important for board board effectiveness and monitoring
ability because it takes away the CEO’s power in nominating new member to the
board (Chtourou et al., 2001). Klein (2002), find that there is a negative
association between board independence and whether the CEO sits on the
nomination committee. Thus the following hypothesis is developed:
H3a : Nomination committe independence is related to return on assets.
H3b : Remuneration committe independence is related to return on assets.
H3c : Audit committe independence is related to return on assets.
Family Controlling
The family controlled firm or family ownership is the most common form
of business organization in the world and developing countries mostly have large
firms which are controlled by family ownership. According to the study of
Clasessens et al (2000) on the separation of ownership and control in nine East
Asian corporations (Hong Kong, Indonesia, Japan South Korea, Malaysia,
Philippines, Singapore, Taiwan and Thailand), Malaysia has the third highest
concentration of control after Taiwan and Indonesia.
Due to controlling power in company, the dominant family is able to
influence appointments of top managers as well as board members. Based from
previous study, Prabowo and Simpson (2010) find that controlling family
ownership and the family involvement on the board are found to have negative
relationship with firm performance.
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Thus the following hypothesis is developed:
H4a : The presence of director who is the family member on the board is
related to return on assets.
H4b : The proportion of family ownership is related to return on assets.
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CHAPTER III
RESEARCH METHODS
A. Research Design
This study is a hypothesis testing study because it aims to test variables that
have impact on dependent variable. This study was conducted to test and examine
the effect of coporate governance mechanism to return on assets. This is a cross
sectional studies which means that the data were only taken once (2010).
Independent variables in this research consist of chairman tenure, chairman
financial background, chairman executive, board size, independent board, board
meeting, remuneration committee independent, nomination committee
independent, audit committee independent, family involvement, and family
ownership. Dependent variable is return on assets.
B. Population and Sample
Population refers to the entire group of people, events, or things of interest
that researcher wishes to investigate (Sekaran, 2000). Population of this research
is annual reports of manufacturing companies listed in Bursa Malaysia Stock
Berhard in 2010.
Sampling is the process of selecting sufficient number of elements from the
population, so that by studying the samples and understanding of the
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characteristics of the samples subjects, it would be possible to generalize the
characteristics of population elements (Sekaran, 2000). Sample methods for this
research is using purposive sampling which aims to obtain the representative
samples along with researcher needs. For each company, the 2010 annual reports
was obtained from Malaysia stock exchange website. The criteria of sample are
determined by:
1. The firm is manufacturing company which listed in Bursa Malaysia during
the period 2010.
2. Annual report is in English or at least has the English version.
3. Complete data on coporate governance and return on assets.
C. Source and Data Collecting Technique
This study uses secondary data which means data that refers to information
that obtained from sources. The data taken from annual reports in Bursa Malaysia
Berhard (Bursamalaysia.com). Data used in this research:
1. List of manufacturing companies in 2010 is taken from Bursa Malaysia
Berhard website.
2. Company’s corporate governance data is based on annual reports
disclosures which published by the company.
3. Return on assets is obtained from the financial statements of companies.
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D. Operational Definition and Measurement of Variables
This study uses the independent variables, dependent variable, and control
variables. The operational definition and measurement of the variables are
described as follows:
1. Independent Variables
Independent variable in this study is good coporate governance which can
be explained by chairman tenure, chairman financial background, chairman
executive, board size, independent board, board meeting, remuneration committee
independent, nomination committee independent, audit committee independent,
family involvement, and family ownership.
a. Chairman tenure is measured by duration of chairman tenure until year t.
b. Chairman financial background is dummy variable. If chairman has
financial education background = 1, otherwise = 0
c. Chairman executive is dummy variable. If chairman on the board is
executive= 1, otherwise = 0
d. Board size is measured by the total number of board members on the board.
e. Independent board is measured by the proportion of independent directors
on the board, expressed as a percentage.
f. Board meeting is measured by total number of board meeting which held
annualy by the board of directors.
g. Remuneration committee independence is measured by the percentage of
remuneration committe independent to total committee.
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h. Nomination committee independence is measured by the percentage of
nomination committe independent to total committee.
i. Audit committee independence is measured by the percentage of audit
committe independent to total committee.
j. Family involvement is measured using ratio family members on the board to
total number of directors.
k. Family ownership is measured by using percentage of direct shares owned
by family control directors.
l. Firm size is measured by nantural logarithm of total assets.
m. Leverage is measured by ratio of total debt to total assets.
n. Type of indsutry is dummy variables (1,2,..,5)
2. Dependent Variable
Dependent variable in this study is return on assets. Return on assets define
as eaning before interest and taxes divided by total assets. Return on assets is use
to measure firm performance. Barro (1990) and Klein (1998) use return on assets
(ROA) as an operating performance indicator. Brown and Caylor (2005) use ROE
and ROA as their two operating performance measures. Managers are directly
responsible for the operations of the business and therefore the utilization of the
firms’ assets. Thus, return on assets allows users to assess how well a firms’ CG
mechanism is in securing and motivating efficient management of the firm. In the
present study, return on assets is defined as net income before interest expense for
the fiscal period divided by total assets for that same period (Barro, 1990 and
Angbazo and Narayanan, 1997).
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3. Control Variables
Control variables in this study is explained by firm size, leverage and type
of industry.
a. Firm size is control variable which measured by nantural logarithm of total
assets.
b. Leverage is control variable which measured by ratio of total debt to total
assets.
c. Type of indsutry is dummy variables which represented by give score (1,2,..,5)
on each type of manufacturing companies.
E. Data Analysis Methods
In this study, OLS analysis regression is used to analyze the realationship
between independent variables, dependent variable, and control variables. SPSS
17.00 for Windows is used as an analytical data tool to test the regression model.
Theoretically, the model will give the valid value if classical assumption test are
fulfilled.
1. Classical Assumption Test
Before testing the hypothesis, classical assumption test is important to
ensure that study results are valid. Classical assumption test consist of several
kinds of tests including normality test, multicollinearity test, autocorrelation test,
and heteroscedasticity test.
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a. Normality Test
Normality test is used to determine whether the residual value in regression
model is well- modeled by a normal distribution (Ghozali, 2006). T-test
and F-test is done with underlying assumption that residual value is
normally distributed. Kolmogorov-Smirnov test is applied to test this
assumption. Criteria that operate in this test are two tailed test, comparing p-
value with significance level. This study use significance level 0.05. If p-
value > 0.05 then the data is normally distributed.
b. Multicollinearity Test
Multicollinearity test is used to determine whether two or more independent
variables in a multiple regression model are highly correlated (Ghozali,
2006). Tolerance value and variance inflation factors (VIF) could provide
measurement to detect if multicollinearity exist. These measurements
can show which independent variables are explained by other independent
variables. If tolerance value < 0.05 and VIF > 5, then multicollinearity exist.
c. Autocorrelation Test
Autocorrelation test is used to determine whether there is a correlation
between values of the process at different points in time, as a function of the
two times or of the time difference. If there is no correlation between
residual value, then the residual value is random (Ghozali, 2006). This study
use run test to detect autocorrelation. Criteria that operate in this test are two
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tailed test, comparing p-value with significance level. This study use
significance level 0.05. If p-value > 0.05 then the residual is random.
d. Heteroscedasticity Test
Heteroscedasticity test is used to determine whether the variance of the
error terms differ across observations (Ghozali, 2006). Tests to detect
existance of heteroscedasticity is look at the graph scatterplot between the
predicted value of the dependent variable (ZPRED) and the residual
(SRESID). When the dots result is spread and random, then there is no
heteroscedasticity.
2. Descriptive Statistics and Univariate
Descriptive statistics used to find the average (mean), standard deviation,
and maximum and minimum value from variables tested in the study. This
analysis is intended to provide idea of distribution and behavior data samples
(Ghozali, 2006).
3. Multivariate
From the hypothesis above, the research model can be explained by this
formula:
ROA = return on assets
β = parameters (i = 1,2,3,...11)
CTE = chairman tenure
CFB = chairman financial background
ROA = β0 + β1CTE + β2CFB + β3CEX + β4BDIND+ β5BDSZ + β6BDM + β7NOM + β8REM+ β9AUD + β10FAM + β11OWN +e
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CEX = chairman executive
BDIND = board independent
BDSZ = board size
BDM = board meeting
NOM = nomination committe independent
REM = remuneration committe independent
AUD = audit committe independent
FAM = family involvement
OWN = family ownership
e = error terms
a) Significance Silmutaneous Test (F-Test)
F-Test is used to prove whether all independent variables have a
simultaneously effect on dependent variables.
b) Coeffcient of Determination (R 2 - Test)
Coefficient of determination is used to explain how much of the variability
of regression model can be caused or explained by its relationship to dependent
variable. Each additional independent variable will make R2 increase.
c) Partial Regression Test (t-test)
This test is to determine whether the independent variables in the partial
will affect the dependent variable, assuming the other independent variables
constant. Criteria of test:
a. If significant value > alpha (5%, 1% , or 10%), it means an individual
independent variable has no effect on the dependent variable.
b. If significant value < alpha (5%, 1% , or 10%), it means an individual
independent variable affect on the dependent variable.
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CHAPTER IV
DATA ANALYSIS
This chapter will describe the data analysis and research results about
corporate governance and ROA, which are about data research collection, data test,
data test analysis. Analytical model used in this study is multiple linear
regressions using SPSS release 17.0.
A. Data Collection Analysis
The population from this research is all Malaysian main market companies
which listed in Bursa Malaysia Berhard in 2010. Based on the sample criteria
discussed above, this study obtained 200 samples.
Table IV.1 Data Research Collection
Explanation 2010 Total companies
Total non-manufacturing companies
Total unpublished annual report of manufacturing companies until
the end of 2010
Total manufacturing companies with incomplete data
828
(448)
(98)
(82)
Total samples 200
Source: Bursa Malaysia Berhard (2012)
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B. Classic Assumptions Test
The result from this test is prepared in appendix. Based on the results, the
data in this study is passed from classic assumptions test which include normality
test, multicollinearity test, autocorrelation test, and heteroscedasticity test.
C. Descriptive Statistics
Descriptive statistics in this study is use to find mean value and deviation
standard, minimum and maximum from the variables. Table IV.2 is prepared to
define the variables that used in this study.
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Table IV.2
Variable Definition
Variables Acronym Operational Definition
Return On Assets ROA Return on assets of the company on year t
Chairman tenure CTE Chairman’s duration of tenure until year t
Education background of chairman
CFB If chairman has financial education background = 1, otherwise = 0
Chairman Executive CEX Chairman executive = 1, chairman non-executive = 0
Proportion of board independent
BDIND The proportion of independent directors on board
Size of board BDSZ The size of board on year t
Board Meetings BDMET Total number of board meeting held annualy by the board of directors
Nomination committee independence
NOM Percentage of nomination committe independence to total committee on year t
Remuneration committee independence
REM Percentage of remuneration committe independence to total committee on year t
Audit committee independence
AUD Percentage of audit committe independence to total committee on year t
Family involvement FMI Percentage of family involvement on the board
Family ownership OWN Percentage of direct shares owned by family on the board
Asset AST Natural logarithm of total assets
Leverage LEV Ratio of total debt to total assets
Industry IND Industry dummy variables
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Table IV.3 represents the result of descriptive statistics.
Table IV.3
Descriptive Statistics
Min Max Mean SD ROA -0.970 0.610 0.05490 0.149945 CTE 0.00 31.00 6.9350 6.51560 CFB 0.00 1.00 0.3050 0.46156 CEX 0.00 1.00 0.3900 0.48897 BDIND 0.00 1.00 0.4587 0.12677 BDSZ 3.00 14.00 7.2750 1.88604 BDME 0.00 25.00 5.4000 2.41228 NOM 0.00 1.00 0.7943 0.26049 REM 0.00 1.00 0.6517 0.24993 AUD 0.60 1.00 0.8878 0.14936 FAM 0.00 0.80 0.2190 0.22133 OWN 0.00 0.74 0.0687 0.14442 AST 17.16 23.36 19.5344 1.18664 LEV 0.03 1.42 0.4204 0.22945 IND 1.00 5.00 3.1200 1.05887
ROA has minimum score on -97% and maximum score 61% with 0,54%
as the average score. It means some companies still has negative value on
returning their assets and still have low score. The average of chairman tenure is 7
years with some companies with a very new chairman (0 year) and the longest
duration is 31 years with 31% of them have financial education background. This
reveals that less than half of chairmen have financial background on their
education and the averages of chairmen are on their medium tenure. The average
position of chairman is 39% as executive member.
The average proportion of independent directors on board is met with what
Malaysian’s government requires. The proportion should at least contain one third
independent directors and the result is 46%; which means the number of
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independent members is above requirement. All companies have 8 members of
their board directors on average, with 3 members at its minimum and maximum
14 members, with having 6 meetings for 2010.
Nomination committee from all companies has 80% independent members,
while remuneration committee has 65% independent member and audit committee
has 88% independent members. The number of audit committee has met with the
rule which stated one third of the members should commit as independent
members.
All of companies in this study have 22% of family relationship on board,
with minimum number zero and maximum number is 80%. The average family
ownership of the companies is not as big as its maximum number (80%) which is
only 0,7%. It means not all families have their ownership on the company.
Control variables for this study are company size (AST), leverage (LEV),
and type of industry (IND). The average score of company size is 19.5344 with a
lowest score 17.16 and a highest score 23.36. Leverage has an average score
0.4204 with a lowest score 0.03 and a highest score 1.42. Type of industry (IND)
is a dummy variables with minimum value 1, maximum value 5 and an average
score 3,12.
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Table IV.4
Pearson Correlation
ROA CTE CFB CEX BDIND BDSZ BDME NOM REM AUD FMI OWN AST LEV IND
ROA 1 CTE 0.082 1
CFB 0.060 -0.090 1
CEX 0.145* 0.021 -0.129 1
BDIND -0.062 -0.122 0.187** -0.066 1
BDSZ 0.039 0.110 0.007 -0.062 -0.371** 1
BDME -0.242** -0.131 0.034 -0.133 0.042 0.063 1
NOM -0.031 -0.056 -0.125 0.133 0.260** -0.066 -0.057 1
REM 0.040 -0.128 0.019 0.110 0.295** -0.208** 0.091 0.610** 1
AUD 0.104 -0.004 0.027 0.076 0.379** 0.115 -0.040 0.320** 0.249** 1
FAM -0.043 0.188** -0.146* 0.177* -0.201** 0.161* -0.162* 0.006 -0.127 0.145* 1
OWN 0.032 0.040 -0.106 0.064 -0.044 0.011 -0.133 0.086 0.036 0.072 0.407** 1
AST 0.238** 0.071 0.106 -0.008 -0.095 0.274** 0.116 -0.067 -0.075 0.035 -0.067 -0.032 1
LEV -0.375** -0.167* -0.022 -0.228** 0.027 -0.058 0.374** 0.023 0.033 -0.116 -0.032 -0.046 0.027 1
IND 0.073 0.038 0.069 -0.013 0.061 0.104 0.184** 0.102 0.181* 0.158* 0.005 0.017 0.257** 0.059 1
*Correlation is significant at 5%, **Correlation is significant at 10%
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Table IV.4 shows the coefficient between independent independent variables
are relatively low so there is no multicollinearity issues. Independent variables as
stated as chairman tenure (CTE) and board meeting (BDME) significantly
correlated to return on assets. Otherwise, the variable chairman financial
education background (CFB), executive chairman (CEX), independent board
(BDIND), board size (BDSZ), independent nomination (NOM), independent
remuneration (REM), independent audit (AUD), family involvement (FMI) and
family ownership (OWN) insignificantly correlated to return on assets. The
control variable; leverage (LEV) significantly correlated to earnings management,
while company size (AST) and type of industry (IND) are insignificantly
correlated to earnings management.
D. Multivariate
1. Corporate Governance and Return on Assets
Table IV.5 shows the results of linear regression in this study between
corporate governance and control variables with return on assets. Corporate
governance is proxies as chairman characteristics, board structure and family
involvement. All regressions together make a significant impact to return on
assets. This reveals that corporate governance is playing a role to make return on
assets better or worse.
F values show that all regressions significantly impact return on assets
with the highest adjusted R2 score on model 2. The highest score is 31,2% which
means all the variables on chairman and board of directors could be explained by
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the dependent variables as 31,2%; and the rest 68,8% is explained by other factors
aside from model.
However, for each regression, only board meetings significantly effect to
return on assets as shows in model 2, model 4 and model 6. Hypothesis H2c stated
that the total meeting is related to return on asset is accepted at the 10% level.
This finding consistent to Vafeas (1999), Lawler et al. (2002) and Triki et al.
(2011). Meetings bring benefits such as more time to discuss, set strategy, and
monitor management, however, there are also cost associated with board meetings,
for example managerial time, travel expense and director fees (Vafeas, 1992).
Fancis, Hasan and Wu (2012) argues that board meetings activity is important
channel through which directors can obtain firm-specific information, monitor
management, and determine strategic responses to different events. This finding
however incosistent with Bathula (2008) and Kreyeboah-Coleman (2007) who
found that board meetings insignificantly related to return on assets. They argue
board meetings are only a small part of corporate governance that actually makes
a big impact on return on assets.
All regressions for chairman tenure are insignificant to return on assets. It
means that H1a is rejected; the chairman tenure does not have any impact to the
better or worse return on assets. This, however, inconsistent with Kakabadse and
Kakabadse (2005) who argues that in UK and Australian companies which
consistently exhibited higher performance have their chairman being in role
between 12 to 15 years and US chairmen and board members considered length of
tenure equally necessary to make a consistent difference to the performance board
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and firm. The models in this study show that chairman financial background is not
a significant factor in terms of the firm having better or worse return on assets.
This finding is consistent with Gottersman & Morey (2001) who specifically
found that firms with a CEO who holds an MBA do not have significantly
different performance than firms with a CEO who holds a non-liberal arts
undergraduate degree. Thus, H1b is rejected. All regressions for executive
chairman show that it insignificantly has impact on return on assets. This however
inconsistent with Mishra et al. (2003) who found in India CEO duality is
significantly affect firm performance. In Malaysia, whether the chairman sits as
chairman or as CEO it does not matter because they are not tend to make return on
assets higher or lower.
The coefficients for percentage independent directors on the board are
insignificant to return on assets. Hence, H2a is rejected. It can be inferred that
some directors seems to be independent but do not have an effective and complete
role in controlling the opportunistic behavior of management (Chaghadari, 2011).
All regressions reveal that board size insignificantly have impact on return on
assets. It means that firms with having good corporate governance measures
perform as well as compared to the firms having no or less corporate governance
practices (Khatab and Masood and Zaman and Saleem and Saeed, 2010).
Originally, for large companies (non-R&D based companies) the larger board size
they have the biggest effect they have to firm performance. However, in Malaysia,
it does not matter if they have small or large size of board since it insignificantly
impact on return on assets. Thus, hypothesis H2b is rejected.
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All regressions for nomination and remuneration committees which are
independent directors insignificantly have impact on return on assets. Thus, H3a
and H3b are rejected. These findings inconsistently with Lam and Lee (2010) who
found that nomination and remuneration committees are related to the firm
performance in Hong Kong. They stated that Hong Kong firms’ performance is
affected by nomination and remuneration committees. Audit committes varible in
this study show that it insignificantly has effect on return on assets. This
consistent to Weir and Laing et al (2002) who reported that boards with audit
committes had no effect on firm performance. Hence, H3c is rejected. These
findings show that in Malaysia committee composition either independent or non-
independent, either they have outside or inside members, it insignificantly have
impact to return on assets.
Similarly, the regressions of family involvement are insignificantly impact
on return on assets. These findings is consistent with Prabowo and Simpson
(2010) who find that controlling family ownership and the family involvement on
the board are found to have insignificantly had negative relationship with firm
performance. Thus, H4a and H4b rejected. This show although some companies
have family controlling on their board, it does not make return on assets lower or
higher.
In addition, each of control variables on each model shows that they
significantly related to return on assets. Asset affects return on assets on positive
way while leverage affects return on assets on negative way.
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Table IV.6 shows the regression each chairman characteristic and board of
directors for each regression insignificantly impact to return assets. Controlling
variables, such as leverage and assets, however, always significantly impact to
return on assets.
2. Interaction Corporate Governance with Return on Assets
Table IV.7 shows the regression results with the interaction effects of
variables and board chairman. All regressions together make an significant impact
to return on assets.
Model 1 shows the interaction between chairman tenure (CTE) and
chairman executive (CEX) impacts significantly to return on assets. This shows an
executive chairman with longer duration of work tend to enhanced or lower return
on assets number. Model 2 shows the interaction between chairman tenure (CTE)
and chairman financial background (CFB) insignificantly impact to return on
assets. Model 3 shows the interaction between chairman education (CED) and
chairman executive (CEX) insignificantly have any impact to return on assets.
Model 4 shows the interaction between board independent (BDIND) and
board meeting (BDME) insignificantly impact to return on assets. Model 5 shows
the interaction between board independent (BDIND) and board size (BDSZ)
insignificantly impact to return on assets. Model 6 shows the interaction between
board size (BDSZ) and board meeting (BDME) insignificantly impact to return on
assets. Thus, interactions between chairman and board variables except
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independent board had no impact on return on assets. However model 1, 2, 3, and
5 show board meetings significantly impact on return on assets.
Table IV.8 represents the result of the interaction impact between
chairmen with board of directors. All regressions together make an significant
impact to return on assets.
Model 1 shows the interaction between chairman executive (CEX) and
board independent (BDIND) insignificant have impact to return on assets. Model
3 shows the interaction between CEX and BDME insignificantly impact to ROA.
Model 4 shows the interaction between BDIND and CFB insignificantly impact to
ROA. Model 5 shows the interaction between BDIND and CTE significantly
impact to ROA. Thus, interactions between chairman and board variables
insignificantly impact to ROA. However, all models show that board meetings
(BDME) significantly have impact to ROA and on model 5 chairman tenure
significantly have impact to ROA as well.
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Table IV.5 Linear Regression (A)
1 2 3 4 5 6 (Constant) -0.406c
(-2.715) -0.352c
(-2.246) -0.452a
(-2.832) -0.350b
(-2.203) -0.452b
(-2.812) -0.403b
(-2.480)
CTE 0.000
(-0.216) 0.000
(-0.352) 0.000
(-0.099) 0.000
(-0.230)
CFB 0.005
(0.264) 0.008
(0.413) 0.001
(0.070) 0.006
(0.298)
CEX 0.013
(0.672) 0.009
(0.475) 0.011
(0.572) 0.006
(0.314)
BDIND -0.074
(-0.973) -0.079
(-1.014) -0.133
(-1.466)
BDSZ -0.006
(-1.129) -0.006
(-1.062) -0.006
(-1.088)
BDME -0.007c
(-1.662) -0.007c
(-1.661) -0.008c
(-1.832)
NOM -0.046
(-1.040) -0.047
(-1.045) -0.050
(-1.085)
REM 0.066
(1.420) 0.063
(1.332) 0.070
(1.452)
AUD 0.036
(0.554) 0.036
(0.555) 0.088
(1.208)
FAM -0.021
(-0.640) -0.028
(-0.611) -0.012
(-0.246) -0.027
(-0.581) -0.016
(-0.333) -0.032
(-0.651)
OWN -0.037
(-0.546) -0.048
(-0.611) -0.042
(-0.616) -0.047
(-0.691) -0.040
(-0.590) -0.050
(-0.741)
AST 0.03a (3.816)
0.032a (4.041)
0.031a (3.949)
0.032a (3.950)
0.031a (3.877)
0.033a (3.999)
LEV -0.333a (-8.1660)
-0.315a (-7.556)
-0.335a (-8.567)
-0.312a (-7.180)
-0.331a (-8.007)
-0.303a (-6.920)
IND yes yes
Yes Yes
yes yes
yes yes
yes yes
yes yes
R2 0.325 0.340 0.332 0.342 0.333 0.355 R2-Adj. 0.297 0.312 0.304 0.303 0.294 0.307 F 11.510 12.295 11.866 8.874 8.541 7.283 Sig. 0.000 0.000 0.000 0.000 0.000 0.000 The t-values are given in the brackets a, b, and c represent significant at 1%, 5% aand 10% respectively.
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Table IV.6
Linear Regression (B)
1 2 3 4 5 6 (Constant) -0.451b
(-2.822) -0.452b
(-2.822) -0.453b
(-2.834) -0.419 -2.582
-0.457b (-2.861)
-0.445b (-2.812)
CTE 0.000
(0.897)
CFB 0.000
(0.016)
CEX 0.011
(0.576)
BDIND -0.091
(-1.123)
BDSZ -0.004
(-0.796)
BDME -0.008
(-1.995)
NOM -0.046
(0.302) -0.046
(0.309) -0.048
(-1.078) -0.044
(-0.986) -0.044
(-0.997) -0.058
(-1.312)
REM 0.065
(0.163) 0.066
(1.409) 0.064
(1.365) 0.072
(1.535) 0.058
(1.231) 0.077
(1.665)
AUD 0.036
(0.585) 0.036
(0.550) 0.037
(0.569) 0.065
(0.932) 0.042
(0.640) 0.038
(0.584)
FAM -0.011
(-0.236) -0.012
(-0.260) -0.017
(-0.366) -0.025
(-0.540) -0.007
(-0.148) -0.021
(-0.467)
OWN -0.042
(-0.619) -0.042
(-0.613) -0.040
(-0.594) -0.040
(-0.589) -0.044
(-0.653) -0.051
(-0.757)
AST 0.031a (3.938)
0.031a (3.926)
0.031a (3.920)
0.030a (3.782)
0.033a (4.019)
0.032a (4.103)
LEV -0.336a (-8.440)
-0.335a (-8.542)
-0.330a (-8.180)
-0.332a (-8.473)
-0.337a (-8.588)
-0.305a (-7.283)
IND yes yes
Yes yes
yes yes
yes yes
yes yes
Yes yes
R2 0.332 0.332 0.333 0.336 0.334 0.346 R2-Adj. 0.300 0.300 0.302 0.305 0.303 0.315 F 10.495 10.492 10.548 10.702 10.598 11.154 Sig. 0.000 0.000 0.000 0.000 0.000 0.000 The t-values are given in the brackets a, b, and c represent significant at 1%, 5% aand 10% respectively.
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Table IV. 7
Regression with Interaction Effect (A)
1 2 3 4 5 6 (Constant) -0.410b
(-2.548) -0.043a
(-2.464) -0.399b
(-2.449) -0.347b
(-1.946) -0.451b
(-2.235) -0.408b
(-2.178) CTE 0.003
(1.386) 0.000
(-0.164) 0.000
(-0.264) 0.000
(-0.300) 0.000
(-0.242) 0.000
(-0.234) CFB 0.004
(0.176) 0.008
(0.253) 0.014
(0.577) 0.007
(0.318) 0.007
(0.322) 0.006
(0.299) CEX 0.051c
(1.814) 0.006
(0.310) -0.025
(-0.569) 0.006
(0.325) 0.006
(0.305) 0.006
(0.314) CTExCEX -0.006b
(-2.187)
CTExCFB 0.000 (-0.067)
CFBxCEX -0.025 (-0.581)
BRIND -0.100 (-1.099)
-0.133 (-1.463)
-0.129 (-1.422)
-0.268 (-1.354)
-0.031 (-0.115)
-0.133 (-1.461)
BRSZ -0.006 (-1.020)
-0.006 (-1.080)
-0.006 (-1.134)
-0.006 (-1.041)
0.001 (0.030)
-0.005 (-0.370)
BDME -0.007c (-1.722)
-0.008c (-1.809)
-0.008c (-1.868)
-0.020 (-1.217)
-0.008c (-1.865)
-0.007 (-0.404)
BDINDxBDME 0.024 (0.769)
BDINDxBDSZ -0.016 (-0.398)
BDMExBDSZ 0.000 (-0.050)
NOMIND -0.048 (-1.068)
-0.050 (-1.083)
-0.051 (-1.111)
-0.048 (-1.058)
-0.051 (-1.100)
-0.050 (-1.083)
REMIND 0.062 (1.290)
0.070 (1.439)
0.068 (1.398)
0.069 (1.421)
0.071 (1.468)
0.070 (1.449)
AUDIND 0.084 (1.168)
0.088 (1.206)
0.090 (1.242)
0.085 (1.176)
0.085 (1.158)
0.087 (1.189)
FAMILY -0.043 (-0.894)
-0.031 (-0.642)
-0.029 (-0.590)
-0.030 (-0.629)
-0.032 (-0.654)
-0.031 (-0.648)
OWN -0.056 (-0.833)
-0.050 (-0.732)
-0.049 (-0.715)
-0.050 (-0.740)
-0.048 (-0.707)
-0.031 (-0.741)
AST 0.031a (3.875)
0.033a (3.970)
0.032a (3.920)
0.033a (4.051)
0.033a (4.009)
0.033a (3.985)
LEV -0.299a (-6.905)
-0.303a (-6.896)
-0.300a (-6.812)
-0.304a (-6.941)
-0.301a (-6.805)
-0.303a (-6.608)
IND yes yes
yes yes
yes yes
yes yes
yes yes
yes yes
R2 0.372 0.355 0.357 0.357 0.356 0.355 R2-Adj. 0.320 0.303 0.304 0.305 0.303 0.303 F 7.256 6.762 6.796 6.822 6.778 6.761 Sig. 0.000 0.000 0.000 0.000 0.000 0.000
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The t-values are given in the brackets a, b, and c represent significant at 1%, 5% and 10% respectively.
Table IV.8 Regression with Interaction Effect (B)
1 2 3 4 5 (Constant) -0.411b
(-2.519) -0.417b
(-2.523) -0.404b
(-2.454) -0.396b
(-2.406) -0.478b
(-2.956) CTE 0.000
(-0.107) 0.000
(-0.253) 0.000
(-0.230) 0.000
(-0.249) 0.014b
(2.659) CFB 0.009
(0.426) 0.005
(0.242) 0.006
(0.295) -0.016
(-0.199) 0.010
(0.479) CEX 0.063
(0.799) 0.041
(0.560) 0.007
(0.140) 0.005
(0.279) 0.016
(0.839) BRIND -0.106
(-1.085) -0.134
(-1.478) -0.133
(-1.462) -0.146
(-1.437) 0.073
(0.638) BRSZ -0.007
(-1.194) -0.004
(-0.630) -0.006
(-1.082) -0.006
(-1.088) -0.006
(-1.110) BDME -0.008c
(-1.860) -0.008c
(-1.800) -0.008c
(-1.659) -0.008c
(-1.823) -0.007c
(-1.727) CEXxBDIND -0126
(-0.744)
CEXxBDSZ -0.005 (-0.494)
CEXxBDME 0.000 (-0.025)
BDINDxCFB 0.045 (0.287)
BDINDxCTE -0.030 (-2.828)
NOMIND -0.050 (-1.098)
-0.050 (-1.096)
-0.050 (-1.082)
-0.049 (-1.067)
-0.058 (-1.290)
REMIND 0.069 (1.429)
0.071 (1.469)
0.070 (1.448)
0.069 (1.434)
0.069 (1.451)
AUDIND 0.090 (1.240)
0.090 (1.232)
0.088 (1.205)
0.085 (1.171)
0.089 (1.248)
FAM -0.031 (-0.641)
-0.031 (-0.649)
-0.032 (-0.650)
-0.031 (-0.064)
-0.050 (-1.305)
OWN -0.050 (-0.730)
-0.050 (-0.734)
-0.051 (-0.739)
-0.051 (-0.742)
-0.012 (-0.176)
AST 0.032a (3.974)
0.033a (3.985)
0.033a (3.976)
0.033a (3.995)
0.032a (3.940)
LEV -0.300a (0.000)
-0.304a (-6.921)
-0.303a (-6.902)
-0.304a (-6.902)
-0.300a (-6.987)
IND Yes yes
yes yes
yes yes
Yes Yes
Yes yes
R2 0.357 0.356 0.355 0.356 0.382 R2-Adj. 0.305 0.304 0.303 0.303 0.332 F 6.818 6.786 6.761 6.770 7.588 Sig. 0.000 0.000 0.000 0.000 0.000
The t-values are given in the brackets a, b, and c represent significant at 1%, 5% aand 10% respectively.
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CHAPTER V
CONCLUSIONS
A. Conclusions
As mentioned in the previous chapters, this research aims whether
corporate governance has impacts to return on assets (ROA). Samples were
taken from annual reports of companies listed in Bursa Malaysia Berhad at
the end 2010 which conclude 200 companies. Independent variables in this
research consists of chairman tenure, chairman financial background,
executive chairman, board size, independent board, board meetings,
remuneration committee independence, nomination committee independence,
audit committee independence, family involvement, and family ownership.
Dependent variable in this research is firm performance which proxies as
return on assets.
The result of classic assumption explained that the residual data have
been normally distributed and there is no multicollinearity between
independent variables. Run test also shows that there is no autocorrelation
and by using scatterplot graphic shows that there is no heteroscedasticity.
Therefore, the data in this study passed from classic assumption test which
include normality, multicollinearity, autocorrelation, and heteroscedasticity.
This study also use descriptive statistics analysis to find the average (mean),
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standard deviation, and maximum and minimum value from variables tested
in the study.
From the regression analyses that were done, this research shows
several conclusions. First, simultaneously, corporate governance in Malaysia
significantly has impacts on firm performance. This shows that corporate
governance has big effects on enhanced or lowered firm performance. Second,
in partial, only board meetings that significantly have impact on return on
assets. Meetings bring such benefit as more time to discuss, set strategy, and
monitor management. Hence, only H2c accepted. Partially, other independent
variables such chairman characteristics, board characteristics, independence
committees, and family controlling are not the biggest impact on firm
performance since they are insignificantly have impact to firm performance in
Malaysia. Independence committees and family controlling, however, as the
research gap with previous study, still not give big contribution to firm
performance. Fourth, on the interaction regression, it shows that executive
chairmen that have longer duration work significantly have impact on return
on assets.
B. Research Constraints
Some of research constraints in this research are:
1. This research is using only ROA, while financial performance can be
measured by ROA, ROE and Tobin’s Q. It makes this research only giving
concentration on return on assets.
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2. Although it was easy to gather all data needed, some companies reported their
annual reports very late.
3. Not every company in this research has remuneration committees and
nomination committees.
C. Research Suggestion
The following are suggestions to future research development:
1. Future research can enlarge sample size, example expanding countries
examined (e.g. Malaysia-Indonesia-Singapore, Asia-Pasific, ASEAN) or use
larger samples from Malaysia companies.
2. Future research can use other than only using ROA; it can use ROE and
Tobin Q. Adding other financial performance indicator will improve our
knowledge of financial performance of companies.