The Corporate Governance And Agency Problem Finance Essay

Denis and McConnell ( 2003 ) defines corporate administration as the “ set of mechanisms-both institutional and market-based-that induce self-interested accountants of a company ( those that make determinations sing how the company will be operated ) to do determinations that maximize the value of the company to its proprietors ( the providers of the capital ) ” ( Denis and McConnell, A 2003 )

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Corporate dirts and failures around the universe such as Enron, WorldCom, and Adelphia in the United Sates, or Ansett, OneTel, and HIH in Australia which happened in the beginning of this century revealed the demand for paying more attending to corporate administration and ownership for policy shapers, investors, and directors and its consequent was that they realized the importance of research in this field. ( Byrnes et al. , 2003 ; Kang, Cheng and Gray, 2007 ; Cheng, 2003 ; Houle, 1990 ; Park and Shin, 2003 ; Bebczuk, 2005 ; Brown and Caylor, 2006 )

Denis and McConnell ( 2003 ) demonstrate that during the 1970s and 1980s most of the surveies were conducted merely on the corporate administration in the United States market. Then by the early of 1990s, the range of research has expanded to other markets such as the UK, Japan, and Germany. Thereafter, during the recent old ages the research on emerging markets has taken into consideration as good. ( Denis and McConnell, 2003 )

However, harmonizing to Bebczuk ( 2005 ) , although the research on the relationship between corporate administration patterns, boards of managers ‘ composing, leading and managerial ownership model with houses ‘ public presentation started in the 1970s ( Judgea, Naoumovab, and Koutzevol, 2003 ) , the theoretical accounts were non popular in a really great extent until late ( Bebczuk, 2005 ) .

The demand to measure the relationship between corporate administration and public presentation comes from the struggle of involvement between directors and proprietors that it is called bureau job. Furthermore, this struggle can ensue in taking some actions by directors which might be at the stockholders ‘ disbursal. For case, Bebczuk ( 2005 ) references unproductive investings and direction ‘s low attempt as evidenced by this statement. ( Jensen & A ; Meckling, 1976 ; Judgea, Naoumovab, and Koutzevol, 2003 ; Bhagat and Bolton, 2008 ; Bebczuk, 2005 ) . Furthermore he states that the root of bureau jobs is that the directors merely receive a little part of the house ‘s net gross, while they to the full appropriate the resources diverted. However, to get the better of this job, Grossman and Hart ( 1983 ) claim that ownership by the directors can be a better action to diminish the consequence of this job instead than trusting merely on contracts. ( Bhagat and Bolton, 2008 )

Therefore, delegating the duties and control of the house to directors by stockholders and proprietors can be done through the mechanisms to protect both sides and supply some installations to supervise and detect directors and their public presentation. These mechanisms will guarantee proprietors that directors are working to maximise stockholders ‘ value. Elsewhere, Dharwadkar & A ; associates ( 2000 ) argue that the divergency between agents ( directors ) and principals ( stockholders ) or bureau jobs can intensify as a consequence of weak administration. ( Judgea, Naoumovab, and Koutzevol, 2003 )

This sort of mechanisms can be divided into two classs which are internal and external attacks. ( Omran, 2009, Denis and McConnell ( 2003 ) ) . For case, CEO dichotomy and ownership construction are internal attacks and based on Wan ‘s ( 1999 ) research, there is a U-shaped relationship between ownership direction and house ‘s public presentation ; in add-on, similar to Grossman and Hart ‘s ( 1983 ) sentiment, he explains that insiders ‘ ownership can be an inducement for them to work hard to increase the steadfast value. ( Omran, 2009 ) .

On the other manus, regulations and enforcement actions and hostile coup d’etat menace are some of external corporate administration mechanisms. For illustration, stockholders unsatisfactory which can be a effect of unsuitable schemes and determination devising by direction will take to the company being undervalued by the market and the consequence will be a hostile coup d’etat command for the house. Elsewhere, Shleifer and Vishny ( 1997 ) province that internal administration patterns can be used as a permutation for external mechanisms when the weak legal model can non safeguard stockholders ‘ value. Therefore, if the regulative system does non move as a good protection lever to see that directors work to maximise proprietors ‘ value, stockholders will maintain big places in the houses and the result will be a concentrated ownership. ( Omran, 2009 )

However, there are two grounds that force directors to pay attending to corporate administration patterns. First of wholly, each state has some specific Torahs to protect investors and all companies that work in that state must obey them. Hence, directors try to run into the demands by taking a corporate administration mechanism that is compatible with the state ‘s Torahs and has the minimal conformity cost and it can be the minimal degree for a house. Second, as Botosan ( 2000 ) claimes, because some corporate administration patterns such as more transparence or revelation will ensue in diminishing the cost of capital and cut downing the hazard premium demanding by investors, directors will be interested to better their corporate administration degree and it can be the maximal degree for a house to better their corporate patterns. As a affair of fact, the existent corporate administration degrees that companies choose to implement in a state is located between these two terminals. ( Aggarwal et al. , 2006 ; Klapper and Love, 2004 ; and Anderson and Gupta, 2009 )

Corporate Administration in Malaya

The importance of corporate administration was manifested to Malaysia and other East Asiatic states after Asiatic Financial Crisis in 1997 and it became a affair of concern for public and private sectors in the affected states such as Malaysia, Indonesia, South Korea, and the Philippines.

Harmonizing to Haat, Rahman, and Mahenthiran ‘s research ( 2008 ) and Sachs ( 1998 ) , the Asiatic economic system crisis in 1997 was the continuance of 1990 ‘s recession in Japan ( Haat, Rahman and Mahenthiran, 2008 ) . Before this crisis, Malaysian stock exchange market was one of the most active stock exchange markets in the universe and KLSE turnover has passed even markets like New York Stock Exchange ) . Hence, it was one of the most popular markets for investors all over the universe. The authorities ‘s purpose and policy was to be a developed state in 2020 and specializers anticipated a uninterrupted economic growing by 2020. As shown in the figure 1, KLSE composite index exceeds 1270 in March 1997 and so declines aggressively to its minimal sum 261 in September 1998 which is 79 % diminution.

Figure 1: KLSE Composite Index from 1993 to 2010, Beginning: Yokel Finance

Furthermore, after the crisis, the value of Malayan ringgit fell from RM 2.5 for each US dollar to about RM 4.1 to a US dollar which means more than 60 % diminution for Malayan ringgit during the Asiatic Financial Crisis. Johnson et Al. ( 2000 ) emphasizes states with weak legal protections encountered greater diminution in their exchange rate and severer stock market lag during the crisis ( Sung, 2003 ) . Then, in September 1998, a wide scope of policies were announced to forestall more loss and catastrophe. Boo ( 2003 ) stated that there are different points of position on the causes of Asiatic fiscal crisis ( Boo, 2003 ) . Furthermore, as mentioned in the Zulkafli, Abdul Samad, and Ismail ‘s research on the function of corporate administration in Asiatic fiscal crisis, Krugman ( 1998 ) in “ What Happened to Asia ” , Corsetti et Al ( 1998 ) in “ What Caused the Asiatic Currency and Financial Crisis ” , and International Monetary Fund ( 1999 ) , argued that the crisis happened because of domestic policy failings and some structural failings in the domestic fiscal establishments following by unhealthy macroeconomic policies. Further, IMF stated that one of the other grounds for the crisis was failings hapless administration. Furthermore, The World Bank ( 1998 ) declared that hapless hazard direction in banking sector which is a consequence of weak corporate administration activated it. Besides, cross-ownership of Bankss and companies, weak enforcement of bank ordinances and government-directed loaning had a direct consequence on the inordinate loaning and it was one of the crisis grounds as good. Meanwhile some of research workers have gone one measure further and claimed that the chief cause for the crisis was hapless corporate administration in these states. ( D’Cruz, 1999 ; Khas, 2002 ; Sung, 2003 ; Mohammed et al. , 2006 ; and Haat, Rahman, and Mahenthiran, 2008 ) . In add-on to all of mentioned researches, Boo Yeang Khoo ( 2003 ) has claimed that although possibly some of research workers point out other grounds and do n’t believe that weak corporate administration patterns such as hapless fiscal construction of houses ; deficiency of revelation, transparence, and answerability ; complex construction of household ownership in many corporations ; deficiency of effectual policies and regulations to command directors, managers, and stockholders ; pudding stone schemes are non its chief causes, decidedly these factors had contributed to this fiscal crisis ( Boo, 2003 ) .

Finally, although legion grounds for the crisis were presented in different researches, a consensus among most of the thoughts can be found which is hapless administration is one of the cardinal factors and it can non be ignored during the deep survey of the crisis.

Therefore, in position of the fact that assorted international bureaus such as International Monetary Fund, Asian Development Bank, and the World Bank recognized corporate administration as one of the of import factors involved in the Asiatic economic system crisis, the Malayan authorities accomplished some corporate administration patterns to pull off the crisis and extinguish the Malayan recession. After deep survey and research, and based on recommendations of Bank Negara Malaysia and Finance Committee which was formed in 1998 the most of import action was taken and the Malayan Code of Corporate Governance announced in 2000 to better the corporate administration patterns included equity, revelation, transparence, duty, and answerability of Malayan houses.

Why Malaysia?

Over the past few decennaries assorted surveies have been conducted in huge item and from different facets of the corporate administration patterns and ownership direction in developed states particularly in the US and Japan ( Shleifer and Vishny,1997 ; Campbell and Keys, 2002 ) . However, as Khanna ( 2000 ) stated, really small empirical research has been done on this issue in emerging markets and developing economic systems ( Campbell and Keys, 2002 ) . However, effectual and sound corporate administration patterns are non merely of import in developed states, but they are every bit or even more critical in emerging and transitioning economic systems ( Dharwadkar, George, and Brandes, 2000 ; Judgea, Naoumovab, and Koutzevol, 2003 ) because developing economic systems do non hold adequate experience and strong and experient fiscal substructure to meet with these issues ( Omran, 2009 ) .

Cross-sectional, time-series or cross-country analyses?

On the other manus, the research on corporate administration can be conducted based on two attacks which are cross-sectional, time-series state analyses or cross-country analysis ( Sung, 2003 and Omran, 2009 ) . province that as cross-country analyses has some failings, working on one state can hold more advantages ( Sung, 2003 ) .

For case, endogeneity jobs, non-identical Torahs and legal establishments, dissimilar corporate administration environments, fluctuation of fiscal coverage criterions, and different developmental economic phases in different states can impact on the consequence of cross-country analyses. Therefore, by state analysis the endogeneity jobs between institutional environments and ownership construction will be eliminated ( Sung, 2003 and Omran, 2009 ) . Many empirical plants have indicated that different legal models describe much of the cross-country ownership fluctuations ( La Porta, Lopez-de-Silanies, Shleifer, and Vishny, 1997, 2000, 2002 ; Sung, 2003 ) .

Hence, the consequences of cross-country research can non be generalized easy ( Megginson and Netter, 2001 ; Omran, 2009 ) .

Malayan Code on Corporate Administration

As mentioned above, because the deficiency of good corporate administration was recognized as one of the most of import causes of the Asiatic fiscal crisis ( Haat, Rahman and Mahenthiran, 2008 ) , by the foundation of Finance Committee on Corporate Governance in 1998, Malayan Code on Corporate

Administration was introduced in 2000. Determining the best patterns on constructions and procedures which companies can use to accomplish the optimum administration construction is the end of the Code and includes the board composing, policies for inscribing new managers, managers ‘ wage, the usage of board commissions, their governments and their activities ( Zulkafli, A-Samad and Ismail, 2005 ) .

The Code follows a intercrossed attack and includes four chief parts which are rules of corporate administration, Best patterns in corporate administration, rules and best patterns for other corporate participants, and eventually explanatory portion.

Harmonizing to the Code, there are three attacks for corporate administration and each state chooses one of them as follows.

Prescriptive attack – this theoretical account determines some desirable criterions and patterns and revelation of conformity with those criterions is compulsory for each house. For case, the London Stock Exchange follows this attack and all listed companies must follow the best pattern benchmark.

Non-prescriptive attack – this attack focuses on the revelation of house ‘s existent corporate administration patterns. This theoretical account has more flexibleness and allows the managers of each house to follow the best pattern that can fit their demands. The Australian Stock Exchange adopts this theoretical account.

The intercrossed attack – this theoretical account is the linkage between the old attacks. The Committee assumes there is a demand for wide rules and patterns ; nevertheless, each single house should utilize them in such a mode that meets their demands in different state of affairss to achieve the flexibleness. This attack is based on the thought that corporate administration patterns is non like a box ticking or ordering some stiff criterions and constructions.

Problem Statement

As mentioned most of the researches that have been done on corporate administration before, were based on the developed states informations and there are non plenty empirical surveies on this issue in Malaysia. Furthermore, even those few empirical surveies that have been done in Malaysia have been analyzed by arrested development. Although most of the researches in other states have applied this method of analysis for their research as good, it has some restrictions. This research by using Structural Equation Modeling for analysing the information can see all variables in one theoretical account and besides as Wei, Tam and Tan ( 2009 ) mentioned in his research, based on Buck et Al. ( 2003 ) and Tam & A ; Tan ( 2007 ) research, SEM provides a more in-depth and comprehensive position than multivariate arrested development techniques for such incorporate appraisal ( Buck, Filatotchev, Demina, & A ; Wright, 2003 ; Tam & A ; Tan, 2007 ) . Furthermore, most of the research workers offer that using SEM method for surveies that have latent variables is more utile because classical methods such as arrested development analysis are appropriate for information which has no measuring mistake in the independent variables. ( Raykov and Marcoulides, 2006 )

In add-on, although some organisations such as Ministry of Finance have offered some recommendations and besides have passed some regulations to follow best corporate administration patterns, empirical research on these issues is necessary. For case, there is a deficiency of the research on the consequence of corporate administration patterns on public presentation, productiveness, dividend policy, market power etc. is seen in Malaysia.

Therefore, this research surveies the consequence of corporate administration on public presentation, productiveness, market power, efficiency, dividend policy, and hazard in Malaysian listed companies by using Structural Equation Modeling.

Research Problems

What is the consequence of corporate administration on public presentation, productiveness, market power, efficiency, dividend policy, and hazard of Malaysian listed companies?

Research Aims

To happen the relationship and consequence of corporate administration on the undermentioned points of Malaysian listed companies:


Tax return on Assetss ( ROA )

Tobin ‘s Q


Stock Return


Treasury Stock

Ratio of Equity market to book value of assets





Net Income/Employees

Market power

runing income to gross revenues


Sales/Total Assetss

Dividend policy

Dividend to Earning

Dividend to Gross saless

Dividend to Cash Flow


Altman ‘s Z-score

Standard Deviation


Business Hazard


To mensurate the corporate administration of houses and analyzing its relationship with house public presentation and company rating, research workers have developed some tools and indices during the past old ages. One of the most of import and really popular corporate administration prosodies, which was used in many researches in the recent old ages, has been created by Gompers, Ishii, and Metrick ( GIM, 2003 ) ( hereafter GIM ) in 2003 to happen the consequence of corporate administration on company public presentation during 1990s. By roll uping Investor Responsibility Research Center ( IRRC ) information and using an equally-weighted index of 24 administration factors which were divided into five groups: tactics for detaining hostile coup d’etat, voting rights, director/officer protection, other coup d’etat defences, and province Torahs, GIM created G-Index as a representation for steadfast corporate administration. ( Bhagat and Bolton, 2008 ; Brown and Caylor, 2006 ) As a affair of fact, although IRRC factors include 28 factors, firm-level factors were combined with province jurisprudence factor parallels by GIM to make this 24-factor index. Their research determination by utilizing this index was companies that have fewer stockholder rights have lower house ratings and as a consequence lower stock returns. Cremers and Nair ( 2003 ) argue that G-Index can be used efficaciously as an anti-takeover protection index alternatively of a corporate administration measuring because most of its factors are anti-takeover steps. ( Brown and Caylor, 2006 )

Many research workers have used this index to mensurate corporate administration in their accounting and finance surveies during the recent old ages. E.g. , Bebchuk and Cohen ( 2005 ) , Bebchuk et Al. ( 2005 ) , Bergstresser et Al. ( 2006 ) , Bowen et Al. ( 2004 ) , Christoffersen et Al. ( 2004 ) , Core et Al. ( 2006 ) , Cremers and Nair ( 2005 ) and Defond et Al. ( 2005 ) . ( Brown and Caylor, 2006 )

As Brown and Caylor in 2004 mentioned, Gompers et Al. ( 2003 ) , Bebchuk and Cohen ( 2005 ) , Bebchuk et Al. ( 2005 ) and Cremers and Nair ( 2005 ) in their surveies found that better corporate administration patterns and higher rating of the company are correlated. They used G-Index as a placeholder for corporate administration and Tobin ‘s Q as a representation for public presentation.

However, a big figure of recent researches that surveies the consequence of corporate administration on house public presentation have developed alternate corporate administration steps to carry on the research. However, one of those surveies is the research by Bebchuk, Cohen and Ferrell ( 2004 ) “ What matters in corporate administration? ” in 2004 which found that some of the G-Index factors are more of import than others and besides some of them may be correlated ( Amana and Nguyen, 2008 ) . Bebchuk et Al. ( 2004 ) , similar to GIM, used IRRC informations consists of anti-takeover steps to make an entrenchment index. Furthermore, the factors that they used can be classified into six administration classs underlying G-Index: four of them that bound stockholder rights and two that make possible hostile coup d’etats more hard, and they recognized that BCF ‘s index to the full drives the relationship between G-Index and steadfast value. However, as IRRC information consists of merely anti-takeover steps, and concentrating on external administration, steps such as G-Index and BCF ‘s Index that use merely IRRC informations can non analyze internal administration even though effectual corporate administration requires external and internal corporate administration every bit good ( Bhagat and Bolton, 2008 ; Brown and Caylor, 2006 ; and Cremers and Nair, 2005 ) . For case, Cremers and Nair ( 2005 ) usage stockholder activism as internal corporate administration ( Brown and Caylor, 2006 ) .

Therefore, as both internal and external corporate administration have relationship with house public presentation ( Cremers and Nair, 2005 ) , making a metric tool that addresses both of internal and external corporate administration patterns became a critical issue and Brown and Caylor ( 2004 ) by utilizing Institutional Shareholder Services ( ISS ) information and sing 51 firm-specific factors such as aˆ¦ developed a new wide index which is called Gov-Score as a tool to mensurate corporate administration more efficaciously than earlier. This index can be categorized into eight corporate administration groups such as audit, board of managers, charter/bylaws, manager instruction, executive and direction and manager compensation, ownership, progressive patterns, and province of incorporation. Six classs of this index are related to internal administration and two of them are from external facet. Hence, as IRRC merely measures external corporate administration, it can merely cover these two factor classs. Brown and Caylor ( 2004 ) claim that good governed-firms, as measured by executive and manager compensation, have good public presentation. Furthermore, as they mentioned some of commissariats such as administration commission meets yearly, independency of put uping commission which are used as good administration factors and are correlated with good public presentation seldom have been used earlier. On the other manus, some good administration factors that are correlated with bad public presentation such as confer withing fees less than audit fees paid to hearers, absence of a staggered board, absence of a toxicant pill, have normally used before ( Brown and Caylor, 2006 ) .

In add-on, by utilizing Gov-Score index they showed that companies with better corporate administration patterns are more profitable, more valuable, and besides have higher payout ratio to their stockholders, nevertheless, weak governed-companies have lower public presentation, rating, and besides lower payout ratio and eventually they demonstrate that Gov-Score index is more related to steadfast public presentation than G-Index ( Brown and Caylor, 2006 ) .

Consequently, the advantages of Gov-Score index over indices that use IRRC informations are broader range, turn toing both internal and external corporate administration steps, applicable for more companies, and in comparing with BCF ‘s index it is more dynamic ( Bhagat and Bolton, 2008 ; Brown and Caylor, 2006 ) .

Another index that is used to mensurate corporate administration of houses is the Transparency and Disclosure Index ( TDI ) . The TDI, by analyzing the corporate information transparence and revelation and besides the grade of outside investors against expropriation, attempts to supply a metric for the balance of power between insiders and foreigners ( Bebczuk, 2005 ) .

This index encompasses 32 binary factors consists of a wide scope of administration issues ( e.g. operation of executive organic structures, communicating with outside stakeholders, and the flow of information required for a proper monitoring of the house by minority stockholders ) which can be classified into three sub-indices such as Board, Disclosure, and Shareholders. Each point of the 32 binary factors will acquire one if the house to the full or partly publishes that information and will be zero otherwise.

The sub-indices building helps us to analyze peculiar administration patterns in inside informations and deepness ( Kowalewski, Stetsyuk, and Talavera, 2007 ) . And harmonizing to Bebczuk ( 2005 ) , the TDI sub-indices descriptions are “ The sub-index Board measures the construction, processs and compensation of board and top direction members, the sub-index Disclosure measures the grade to which the company reports relevant corporate facts to the outside stakeholders, and the stockholders, measures the quality of information sing compensation to minority stockholders. ”

And besides, although Black et Al. ( 2003 ) and Bebczuk ( 2005 ) show that TDI and CGI have a high correlativity, analyzing the house ‘s corporate administration based on TDI step depends on the company ‘s determination to print the information or non and it can be its restriction in usage ( Bebczuk, 2005 ) .

Another popular metric tool to mensurate the corporate administration is The Corporate Library ( TCL ) that encompasses more than hundred points with a proprietary weighting method. Some of its factors are bylaws ( e.g. toxicant pills, supermajority commissariats, etc. ) , board construction ( e.g. independency, CEO/chair dichotomy, put uping commission, etc. ) , audit commission ( independency, hearer ‘s consulting fees, and hearer rotary motion ) , direction and manager compensation, and progressive patterns ( manager term bounds and compulsory retirement age ) . TCL index has a positive relationship with corporate administration and it means higher TCL indicates better administration.

Meanwhile, some of research workers consider corporate board features as a measuring for corporate administration. For case, Hermalin and Weisbach ( 1998, 2003 ) and Bhagat and Black ( 2002 ) considered board independency as their index and found that there is non a important nexus between Tobin ‘s Q as a public presentation measuring and proportion of outside managers. Elsewhere, Bhagat et Al. ( 1999 ) uses board members ‘ stock ownership as a representation for steadfast administration or CEO-Duality which happens when the same individual have Chariman and CEO places together was considered in Brickley et Al. ( 1997 ) as their corporate administration step ( Bhagat and Bolton, 2008 ) . Furthermore, Yermcak ( 1996 ) examined the relationship between board size and public presentation and he found a negative relationship between them. He used Tobin ‘s Q as a placeholder for public presentation every bit good.

The above indices were the most popular and oft-cited methods to mensurate corporate administration all over the universe. However, some of research workers who believe that utilizing the above methods, in a pure manner, to mensurate corporate administration is non appropriate to their research either combine some of the mentioned indices or sometimes they create a new customized index based on their demands.

For case, Cremers and Nair ( 2005 ) unite G-Index and pension fund block ownership in their survey on the interaction between corporate administration and house ‘s public presentation to cover both internal and external facets of corporate administration measuring. This new index

Elsewhere, Ashbaugh-Skaife, Collins, and Lafond ( 2006 ) combine the G-index points with some different board features such as board independency and direction compensation to analyze the relationship between corporate administration and recognition evaluations. Somewhere else Defond et Al. ( 2005 ) make a new index in their research by sing equal weight for six variables such as the G-Index, board independency, and audit commission construction to carry on their research. Furthermore, in another survey on the relationship between corporate administration and house ‘s public presentation Bowen, Rajgopal, and Venkatachalam ( 2005 ) use the G-Index and besides several board features to mensurate the house administration or Bhagat and Bolton ( 2008 ) see seven difference placeholders consists of GIM and BSF indices in their survey. ( Bhagat and Bolton, 2008 )

However, as there are some differences in corporate ordinances of different states and their specific revelation demands, sometimes using an Index that is created for US companies is non possible for other researches and they exclude some of the points of old theoretical accounts to utilize them in their ain state. For case, Amana and Nguyen ( 2008 ) province that because of the difference in the handiness of informations in the US and Japan they exclude some points of the theoretical account which are related to incorporation province but stressing more on specific characteristics of houses such as cross-shareholding point in their research in Japan. ( Amana and Nguyen, 2008 )

As it was mentioned, there are many different ways to mensurate corporate administration of a house and each of them has some strength, failings and restrictions. However, sometimes because of the demands and demands of each research the research workers have to make their ain specific index. This research uses a combination of different indices and some corporate board features to mensurate corporate administration patterns of the Malaysian listed companies. Furthermore, the points have been chosen in order to reflect their administration efficaciously and bespeaking more facets of the administration of each house and besides covers more houses. Furthermore, the revelation and cogency of corporate informations in Malaysia is one of the most of import restrictions to make this research ‘s administration index every bit good.


As mentioned before, this research employs structural equation theoretical account to analyze the consequence of corporate administration on some of of import issues in Malaysian listed companies. Here, variables, their position and besides their mentions are shown as follows:

Independent and control variables ( exogenic variables ) for this research are shown in figure 2 by a flecked board. Corporate administration is considered a latent variable and will be measured by four indexs which are board construction and processs, revelation, stockholders, and CEO-duality. The first three indexs are classs of Transparency and Disclosure Index and as mentioned, each one consists of some points as shown in table 1. On the other manus, variables which are out of the dotted board in figure 2 are dependent variables ( endogenous variables ) . The definition of each variable and their mentions are shown in table 2 every bit good.

Figure 2: All exogenic and endogenous variables of this research






Bhagat and Bolton, 2008 ; Zuobao, Varela, and Hassan, 2002 ; Amana and Nguyen, 2008 ; Bebczuk, 2005

Tobin ‘s Q

Amana and Nguyen, 2008 ; Florackis, Kostakis and Ozkan, 2009


Rongli, Zezhong and Hong, 2008

Stock Return

Bhagat and Bolton, 2008

( Value of Common Stocka?’Deferred Taxes ) /Book Value of Assetss

Bhagat and Bolton, 2008

Treasury stock/Total assets

Bhagat and Bolton, 2008

Equity Market/Book Value

Sung, 2003

Q = V /ASSET, V = EQUITY + LTD + STD ; EQUITY = market value of equity ; LTD = book value of long-run debt ; STD = book value of short-run debt ; ASSET = book

Rongli, Zezhong and Hong, 2008


Bebczuk, 2005 ; Zuobao, Varela, and Hassan, 2002


Bebczuk, 2005


Sales/Total Assetss

Zuobao, Varela, and Hassan, 2002



Zuobao, Varela, and Hassan, 2002

Net Income/Employees

Zuobao, Varela, and Hassan, 2002

Dividend Policy

Dividend to Earning

Bebczuk, 2005

Dividend to Gross saless

Bebczuk, 2005

Dividend to Cash Flow

Bebczuk, 2005


Altman ‘s Z-score

Bhagat and Bolton, 2008

Standard divergence of the monthly stock return for the five preceding old ages

Bhagat and Bolton, 2008

The standard divergence of idiosyncratic stock monetary value hazard

Himmelberg, Hubbard, and Palia, 1999

Business Hazard

Ming-Yuan, 2005

Market Power

runing income to gross revenues

Himmelberg, Hubbard, and Palia, 1999


Transparency Disclosure Index

Bebczuk, 2005

Board Size

The entire figure of managers

Bhagat and Bolton, 2008 ; Zhilan, Yan-Leung, Stouraitis and Wong, 2005

CEO Duality

whether CEO and Chairman of the board are the same individual

Bebczuk, 2005


entire capital market

Huimin and Mak, 2002

Ln ( Gross saless )

Zuobao, Varela, and Hassan, 2002 ; Huimin and Mak, 2002

Ln ( Number of Employee )

Zuobao, Varela, and Hassan, 2002

Sum of long-run debt and market value capitalisation of common equity.

Hossain, Prevost, and Rao, 2001

Ln ( Assets )

Bebczuk, 2005 ; Ming-Yuan, 2005


Percentage gross revenues growing

Bebczuk, 2005

per centum growing rate of entire assets

Huimin and Mak, 2002

Capital Structure

Debt to Assets ( purchase )

Bebczuk, 2005 ; Bhagat and Bolton, 2008 ; Huimin and Mak, 2002

Debt to Equities

Bebczuk, 2005

Ln ( Age )

Logarithm of the company ‘s age

Bebczuk, 2005 ; Ming-Yuan, 2005


the net fixed assets plus stock list over entire assets

Rongli, Zezhong and Hong, 2008

Figure 3: All exogenic and endogenous variables of this research

Board construction and processs ( TDI-Board )

Independency standards for managers

Rational of Manager and manager fee

Numbers and per centum of independent managers

Detailss on the nomination procedure of new managers

Report on issues by dissenter managers

Old ages in office of present managers

Code of behavior for managers

Manager and manager fees

Form of director and manager fee payment ( hard currency, stock, stock options )

Information on whether director and manager fees are performance-based

Shareholdings of directors and managers

Composition of the different board commissions

Detailss on activities of the different board commissions

Disclosure ( TDI-Disclosure )

Bio of chief company officers

Bio of managers

Calendar of future events

English-translated corporate web site

Fiscal indexs for the last five old ages

Strategic program and projections for the undermentioned old ages

Publication of board meeting declarations

Publication of stockholders run intoing declarations

Detailss on the appointment procedure of new managers

Detailss on attending of minority and commanding stockholders at stockholders meetings

Reports on issues raised by dissenter stockholders

Year of hiring of the external hearer

Report of the external hearer

Stockholders ( TDI-Shareholders )

Documents on internal corporate administration criterions

Rationale of the past and/or future dividend policy

Detailss of corporate ownership ( chief stockholders )

Type and sum of outstanding portions

Dividend policy in the past five old ages

Projected dividend policy for the undermentioned old ages

Figure 4: Transparency and Disclosure Index Items, Source: Bebczuk, 2005.


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