Corporate governance mechanisms and extent of disclosure : analysis of main board and second board companies in Malaysia

Abstract

Recently, there has been increased attention given to the corporate governance disclosure after the East Asian economies collapsed in the second half of 1997. This study examines the relationship between the corporate governance mechanisms and the extent of disclosure for the main board and second board of listed companies in the year 2002 and 2006. There are two research questions that would like to be highlighted: Firstly, the issue of the level of corporate governance disclosure by main board and second board companies. Secondly, the issue of how corporate governance mechanisms affect companies’ disclosure between main board and second board companies. According to the agency theory context, several corporate governance characteristics in a firm, for instance, board composition, dominant personalities and the existence of the audit committees on the board, can affect the effectiveness of the board of directors’ monitoring role, hence reduce the agency cost. Regression analysis was conducted to determine the association between corporate governance mechanisms and the extent of disclosure level in Malaysian corporate sector practices. Four corporate governance variables are examined in this study, which are: (i) the proportion of independent non-executive directors, (ii) the proportion of independent members of audit committee, (iii) the practice of separate CEO and chairman of the board, and (iv) the percentage of family members on the board. While size, leverage and profitability are employed as control variables. The findings provide evidence that the percentage of family members sit on the board has negative significant effect on the extent of disclosure, whilst the remaining of the corporate governance variables fail to show the significant influences on the corporate governance disclosures provided in the annual reports of Malaysian listed companies. The contribution of the study attempts to extend and fill the gap in literature as well as providing insight for standard setters especially the MCCG and Bursa Malaysia listing requirements.