The impacts of culture and corporate governance on the performance of large listed companies in Malaysia

Abstract

The purpose of this study is to examine the impact of culture and corporate governance on the performance of large listed companies in Malaysia. This study classifies culture into two perspectives i.e. ethnicity and management characteristics. Ethnicity is chosen because it may explain the impact of a particular racial or cultural group on firm performance. As for management characteristics, directors’ characteristics such as age, education level, and tenure may explain their behaviours, attitudes, and choices, which in turn may affect firm performance. Board independence (independent non-executive directors), cross directorship, and board size are variables representing corporate governance. From the final sample of 89 companies, this study gathered information from annual reports for the year 2009. From the analysis, this study found that ethnicity does not have a significant impact on firm performance. As for management characteristics, older directors and directors with the appropriate level of education and skills would indirectly improve firm performance. For Malay-majority boards, board independence and large board size may contribute to a favourable firm performance. On the contrary, for Chinesemajority boards, all independent variables representing corporate governance related negatively with firm performance. Further, the relationship between board independence and firm performance (ROA and ROE) are negative and significant at 10% and 5% respectively. These results may be interpreted that too much emphasis on the role of independent directors may hinder board efficiency and effectiveness. The findings from this study may contribute to the accounting literature, research methodology and industry. Further, findings of this study may be useful for the investors in their decision-making.