academic journal of business excellence 1 2016

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Academic Journal of Business Excellence; Vol. 1, No. 1; 2016ISSN 2413-8266

Published by IIC University of Technology

1 IIC University of Technology, Cambodia 2016


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Academic Journal of Business Excellence Vol. 1, No. 1; 2016

IIC University of Technology, Cambodia 2016 2

Academic Journal of Business Excellence(An International Bi-Annual Journal of Management)

Patron : Prof. Dr. CHHUON Chanthan, IIC University of Technology,Cambodia.

Editor-in-Chief : Assoc. Prof. Dr. Vaibhav P. Birwatkar, IIC University of Technology,Cambodia

Editorial Board

Prof. Dr. Leow Chee Seng,

IIC University of Technology,Cambodia

Prof. Dr. Mihaela Stroe,

University of Bucharest,Romania

Prof. Dr. Lau Wee Yeap, University of Malaya,Malaysia

Prof. Dr. Florica Faur, Vasele Goldis WesternUniversity of Arad, Romania

Prof. Ramayah Thurasamy, University Sains Malaysia,Malaysia

Prof. Dr. Malik Badri, ArfadUniversity, Sudan

Assoc. Prof. Dr. Maisarah,Ahmad National University ofMalaysia, Malaysia

Dr. Vincent Leong WingSum, IIC University ofTechnology, Cambodia

Dr. Maria Argriou,University of Aegean, Greece

Dr. Hossein Nezakati

Alizadeh, University PutraMalaysia, Malaysia

Dr. Anna Cui, NingpoPolytechnics. China

Dr. Ahmed Razman Abdul

Latiff, Putra Business School,Malaysia

Dr. Niki Lambropoulos, London South BankUniversity, United Kingdom

Dr. Natalia Bantas, Academiade Studii Economice dinMoldova, Moldova

Dr. Petros Lameras, TheSerious Games Institute,United Kingdom

-----------------------Editorial and Circulation matters may be addressed to: -----------------------The Editor-in-Chief,

Academic Journal of Business Excellence

IIC University of Technology

Building 650, National Road 2, Sangkat Chak Angre Krom, Khan Mean Chey, Phnom Penh,Cambodia

----------------------- Contact Person -----------------------

Assoc. Prof. Dr. Vaibhav BirwatkarGraduate School, IIC University of Technology

Building 650, National Road 2, Sangkat Chak Angre Krom, Khan Mean Chey, Phnom Penh,Cambodia

Email: [email protected]

This accountability for originality of the articles and research papers, in published in “Academic Journal of

Business Excellence” is entirely the res pective authors. Neither journal nor society will accept any responsibilityfor, nor do they necessary agree with the information expressed in the articles and research papers. The contentsof the journal are the copyright of the “Academic Journal of Business Excellence”, whose permission in

necessary for reproduction in whole or in part. All disputes are subject to Cambodia jurisdiction only.

Copyright – 2016 IIC University of Technology, Building 650, National Road 2, Sangkat Chak Angre

Krom, Khan Mean Chey, Phnom Penh, Cambodia. All rights Reserved ISSN 2413-8266

mailto:%[email protected]:%[email protected]:%[email protected]:%[email protected]


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Table of ContentPage

1. Development of Human Leadership Theory .......................................................................... 4

Mohd Shukor Hj. Mahfar, MalaysiaLeow Chee Seng, Cambodia

2. Analysing Ownership Structure, Company Performance, And A Director’s Renumeration18Lim Vwee Chin, Malaysia

Ahmed Razman Abdul Latiff, Malaysia

William G.Borges, Malaysia.

3. Conducting an Effective and Efficient Road Show Exhibition: Qualitative ResearchApproach .............................................................................................................................. 53Cui Na, China

Leow Chee Seng, Cambodia

4. The Needs of Research for Higher Education Institutions and Academicians in Cambodia70Leow Chee Seng, Cambodia

Ahmed Razman Abdul Latiff, Malaysia

Rosni Binti Abd Wahid, Malaysia

Vincent Leong Wing Sum, Cambodia

5. Reengineering Supply Chain Management Participants’ Role in Sustainability ................. 78Meghdad Abbasian Fereidouni, Malaysia

Hossein Nezakati, Malaysia

6. Persuasion through Artifacts, Sociological and Psychological Dimentions Applied forEmployment Interview ......................................................................................................... 88Mihaela Liliana Stroe, Romania

7. Emotional Intelligence with Culture Increases Trust - How So? ....................................... 103Vaibhav P. Birwatkar, Chisinau


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Human Leadership Theory

Human Leadership Theory is an extension form Human Value Ecosystem Framework (Leowet al., 2015). This theory focuses on four important elements, which are destination, skills,responsibility and values of a human.

Figure 1 Human Leadership Theory

Humans must always identity their own destiny or goals that need to be achieved. Values and past experiences play important role to regulate our actions and behaviour. In a workplace,after identifying employees destination and values, the employees must know clearly theirlimitation and responsibility so that they can be productive. However, they must identify theskills they need so that they can carry out their responsibilities in efficient and effective ways.

Fundamental of Human Leadership: Self-Talk and Inner Self Conversation

Human is living in a busy environment. Most of us are focusing on various daily activitiessuch as working, taking care of family and children, enjoying life such as shopping, travelling

and other businesses. Unfortunately, not many of us would stop just to communicate withinner selves. According to Fairhurst (2008), lack of communication between outer self andinner self makes us confused with ourselves. Sometime, we do not know what we actuallywant. Similarly Jaworski & Senge (2011) stressed that when communications is lacking,

perfect equilibrium cannot be achieved. As a result, we start to take everything as granted.We lost our destination and focus.

When business does not succeed, some chief executive officers start to blame the employees

for non performances (Barton & Mercer, 2005). Employees tend to blame society, economicsand business environment that are not favourable. Lloyd-walker et al. (2014); Gorini,Miglioretti & Pravettoni (2012) have the similar finding about blaming culture. Theyreported that the negative cycle of blame perpetuates itself. When you are pointing at other

people, only one finger is pointing out where as the three fingers are pointing at you. In otherwords, before we point out and blame others, leaders must evaluate themselves andcommunicate with their inner self. Always remember, the realities that leaders experience inour daily lives are in fact created by their own decisions. The root of business failure is the

leaders themselves!

Human Leadership helps human leaders to perceive the distortions and faults in your ownthinking. According to MacDonald (2014), when a leader start to communicate with your

Destination Values

Responsibility Skills

Self


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inner self, the leader will start to gain appreciation towards life and widen the scope of yourown thinking. In Human Leadership’s philosophy and principle, leaders need to actualise thestrategies before the strategies are created. Knowing self responsibility helps human leadersto be successful.

According to Egan (2013), problems are not the stop signs, they are guidelines. Problems in acompany are not the real sources of disappointment but the misunderstanding that createunhappiness. Human leaders must continue to have reflection of sources of unhappiness

before they kick start with any business strategies. Kapferer (2012) summarised thatunderstanding human values, the needs and wants. This will provide great success duringstrategic planning.

Looking Back

DeMel, McKenzie and Woodriff (2014) in their research pointing that “Why do you start

your business in the first place?” In the research some small and medium enterprises (SME)owners are not able to answer this question or they answer in terms of the specialty of the

products that they provide. Hoffman and Woody (2013) has the similar write up that the business owners need to reflect the fundamental again before they venture further. They haveto answer the question, “so what about your business”. If there is no “so what” factor in your

business, there is no proposition of your business to continue and your business can be

winded up and eliminated easily by competitors. In fact, the nature and existence of the business is to help the customers and communities to overcome certain problems.

Similarly, Yang, Wan and Fu (2012) conducted a qualitative research to understand the factorof employee turnover. In their research the following questions were quoted. “ why doemployees want to work in your company? Why does a company want to employ employees?

Employees work in the company to get their salaries”. From the research, the employeesanswered that companies employ employees to help to solve their business problems. If acompany does not have any business problem, the company does not have to employ anyone.

Schultz, & Schultz (2015) wrote in Psychology Work today, when an employee is working ina company, the employee gets a salary by contributing his or her time to the company.Individual self-realization is sacrificed with the company’s self -realisation. The term

“scarifice” is perceived as employees’ contribution to dissatisfaction, disappointment and painstaking and sometimes thankless efforts by employees. Employees feel that they have tomake major sacrifices. The more the employees feel that they have sacrificed for thecompany, their expectations from the company increase. As a result, the employees feeldisappointed when any unexpected scenario strikes (Lazaroiu, 2015). Likewise, companyfeels that it is the employees responsibilities to serve the company. In addition, companydemands more and more from the employees. Furthermore, the employers will start to ignorethe employees’ contribution and never appreciate them (Chang, 2016). As a result, the hugegap between employers’ mind and employees’ that becomes the root of unhappiness.


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The Beauty of Human Leadership Theory

Human Leadership does not follow the traditional leadership models such as Traits Theory ofLeadership, Behaviour Theory, Contingency Theory, Great Man Theory or even SituationTheory that includes Hersey and Blanchard’s situation theory. Human Leadership focuses on

balance harmony between our inner and outer lives through the four elements described infigure 1 as the key for company’s happiness.

In fact, Human Leadership can be explained in a more scientific way. The Law ofConservation Energy explains that “Energy neither can be created nor destroyed, ittransforms from one form to another.” Energy is produced through vibration. Figure 2 showsthe graph generated during vibration:

Figure 2 Vibration and Graph

From the graph, amplitude is defined as the maximum extent of a vibration or oscillation,measured from the position of equilibrium. You can observe that, upper amplitude and loweramplitude are correlated. When the upper amplitude is higher, the lower amplitude is alsohigh. When the upper amplitude is low, the lower amplitude becomes lower.

Figure 3 Human Emotions


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Figure 3 is now applied to explain human emotions. When a person feels happy, his or heremotions trigger and stay away from the harmony, balanced and equilibrium mind. Similarly,when a person feels sad, the intensity of the sadness and depression would be similar to thehappiness that the person feels. Human Leadership hopes that human leaders will always be

aware of their inner emotions. Self reflection must be conducted regardless whether you arehappy or sad. Trying to stay at harmony and equilibrium emotion helps human leaders toachieve self-actualisation and happiness.

Moving Forward

Individual and company must discuss openly about the new kind of working culture. Whenemployees do not mention it out, it might create ambiguous and confusion for the employees.Employers might not know what exactly the employees want.

The discussion between employees and employers must consolidate and unifies bothemployees’ intrinsic values and the extrinsic values. Human Leadership helps you to:

Eliminate dissatisfaction at work.

Create enthusiastic working environment.

Enable employees to work with full confidence .

By applying Human Leadership, the company will become a genuinely interesting workplace.After practising Human Leadership, you will be managing new experience even if something

profound happens.

During the process of applying Human Leadership in your company, the seed ofenlightenment to be planted not only in your heart but also in your soul. Human leadersdevelop the feeling of gratitude and activate the commitment not to create trouble to others.They hold strongly to the principle of harmony and equilibrium. At the same time, perception,action and implementation do not only focus on the immediate problems but human leadersstart to put priority at the employees around them, and also at the community and the societyas a whole. By applying Human Leadership, you will start to appreciate your strengths,weaknesses, values, uniqueness and the interaction for the benefit of human kind.

Synergy of Beyond Boundaries and Human Leadership

“Business as usual” is one of the common phrases among business people. Some youngentrepreneurs start a business for the interest to start a business. They never understood thereal meaning and objectives of starting a business. As a result, when the “seed” is unclear, the“results/products” will not be as expected.

“When I observe more people, I started to realise that many people do something withoutusing their hearts. When they eat, they just rush to finish the meal by swallowing”. Epstein(2013) describes the scenario in the society now. It is really sad to see this scenario in oursociety now. They are lost and they do not know what they are doing.


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Let’s take breathing as a sample for illustration . Human breathe everyday and we do not “feel”the process of breathing. By right, we shall observe and feel the air movement duringinhalation and exhalation. Missing of realization of all these in our lives will influence ourattitude and behaviour that will also affect the businesses that we do. Hence, there is a great

relationship between business operations and Human Leadership.The synergies beyond boundaries are explained and described in the following sessions.

Talent Management and Emotional Quotient

Kiyosaki (2015) wrote in this book, “Rich Dad Poor Dad for Teens”, when we were young,we were told by our parents to study hard and get a good job. When we work, we must followthe rules and regulations of the company. The statement gives good values to guide my career

pathway but there is still a big gap that could help the company. You are right, to help thecompany to grow and sustain, the company needs creative and innovative employees, and theemployees cannot only follow rules. The creativity and innovation can be measured throughempowerment (Maynard et al., 2013).

Seng, Sidin and Sum (2015) conducted an experimental study to observe the response of

employees scenarios when a photocopy machine in an office is not working. An employeecalled the company registered as the service provider to request for the service team to comeand solve the breakdown of the photocopy machine. After a week, the manager realised thatthe photocopy machine was yet to be repaired. The research findings as below:

“I have requested you to get someone to solve the problem but why it remains the

same?” the angry manager asked.

“I called the company but t he company did not send anybody, what do you expect me

to do boss?” replied the executive staff.

Both executive and the manager need to be responsible for the failure of this mission to repairthe photocopy machine. The manager must provide directions for the employee when hedelegates the work and he has to inform the employee of his expected results. The employeemust be creative and innovative when he or she is given the responsibility. The employeeneeds to demonstrate his or her creativivity in his or her work. Empowerment requires self-

reliance and independence of the employee (Chapin et al., 2016).

The research findings argues that the conventional employment systems that follow rulesneed to be re-examined. With competitive employment workforce, company prefersemployees that can operate autonomously and self-direct. During an employment interview,company evaluates how much a person can contribute to the company, which indirectlydetermines the market value of the employee.

Peng (2014) described that companies do not hire candidates purely because they graduatedfrom famous university or look good on paper. The new concept of employment relates to

the potentials that the employees have at workplace. The potentials are directly related to theattitude and their competency to perform in any working environment. Employers understand


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that skills and knowledge are trainable but attitude is the most valuable resource of acompany (Hughes, 2013).

As human leaders, leaders need to help our employees to know themselves well and utilisetheir abilities to the fullest. Employees need to ask themselves, “What do I want to do? What

kind of things am I good at?” The only way to get a true answer is to look at your inner self.In general, employees look for prestige, power and money. Fischer (2013) mentioned thatleaders need to understand which factors motivate them the most. Mismatch between innerself and the work environment will lead to poor performance by the employees.

Starbuck & Hedberg (2015) reported that the success and failure in your work or life havenothing to do with your intelligence and educational background. The abilities to negotiatewell with various types of people and to give good first impression to others have norelationship with your education background. Hence, through Human Leadership, humanleaders will encourage employees to reflect and look at the inner self to enable them tounderstand themselves.

Once human leaders understand the employees, human leaders needs to develop theemotional intelligence of the employees. Emotional intelligence describes how peopleoperate emotionally and how well they empathise and be sensitive towards the environment.Companies prefer employees with open and positive attitudes as well as positive minds.

Newborn babies are the best example of positive mind. Babies usually smile without anyobvious reasons and the happiness is revealed on their faces, showing innocence and anabsence of pressure or worry. Newborn babies do not have unpleasant memories, worriesabout future and great ambitions (Seligman & Csikszentmihalyi, 2014). . The naturalenvironment contributes to the natural happiness and high emotional intelligence of babies.They would try anything without fear. Even if they fall down; they will stand up and try again.

However, various troubles, worry and demand emerge when babies start to grow to becomechildren and then adult. The conflict between ideal self and the real self creates psychologicalturmoil. Human starts to sense inferiority and self-consciousness especially when they start tocompare themselves unfavourably with others (Tolbert, Kohli, & Suri, 2014). Past failureexperiences form long term bad memories develops fear of failure.

Human Leadership encourages followers to create a pure and open mind to overcome anychallenges to understand their own lives. Appreciate the feeling of gratitude is needed whenyou understand the real intention of the other party. The cloudy and foggy thinking in leadersmind will disappear and your thoughts will be clear and lucid. Forgiveness and self-acceptance create a natural, simple and a relaxed attitude to deal empathically with others(Hardy & Everett, 2013).

High emotional quotient employees are more sensitive towards current situation. In addition,they act optimistically without over-anxious about future or being over-cautions because of

past experiences (Ealias & George, 2012). By practising Human Leadership practises,employees regain a clear mind and intelligent sensitivity. In addition, the practices help


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employees to liberate their lives from living a life of regrets and they will start to forgivethemselves for their past mistakes and determine never to repeat the same mistakes again(Caruso, Fleming & Spector,2014).

Individual Self-realisation and Company Self-realisation

Human loves fair treatment and fair distribution (Seng, et al. 2015). In order to achieveharmony, the company self-realisation should be matched with the individual self-realization.However, the individual self-realisation must be the primary as the sustainable strategy.

Figure 4: Changes of Self-reliasation

Before applying the Human Leadership Theory, the self-actualization of the company should be equal to the self-realisation of individual. Carland, Carland, & Carland (2015) analysedmore than 100 companies globally, they found the same characteristic – the companies thatcan adapt and accept the importance of individual employee’s self -realization can sustain inthe long run. This concept is consistent with Human Value Ecosystem (Seng, et al., 2015).

Based on Schaap (2012), employees need to clarify what they want to do to help the company.Then, employees need to seek out the environment that draws on the best of their abilities.The compatibility leads to the mutual benefit of the company and employees. Human leadersmust understand that the contribution of the employees is not merely in financial contributionin term of profits; but the overall balance can be the advantage of the whole company. Thesupportive work to enable company to run smoothly is also very important. By repeatingrealisation and reflection towards company’s operations, leaders will have a betterunderstanding of the company’s directions (Waddell & Pio, 2014).

Mishra, Boynton & Mishra (2014) states that employees should be aware of their ownresponsibilities so that they can contribute to the company. Leaders must understand that

Self-realizationofthecompany

Self-realisation of Individual

Previously

Present


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employees’ contributions might take years to flourish. There are many opportunities foremployees to develop their talents using rethinking methods to contribute to the company.Employees will continue to improve themselves by learning new skills. All new skills learnt

by the employees will contribute to the development of the company in the long run (Kooij et

al., 2013).By upgrading their skills, employees are preparing themselves to earn a better salary. InHuman Leadership, leaders want employees to be stakeholders and have the freedom toidentify the optimum ways to work for themselves in the company. Human leaders give

priority to the self-realisation of employees by providing facilities for the employees tocontinuously seek knowledge (Russell, 2013).

Pfeffer & Sutton (2013) and Lazaroiu (2015) have the similar finding that company can helpemployees to understand their personal abilities when the company proposes the training

programs. The total investment of the employees should be matched with the employeescapabilities. Human leaders must consider the employees capabilities to allocateresponsibilities to their employees.

Human leaders must know their own capacities and decide on the tools to help them to growtheir businesses. Human Leaders provide tools to nurture the employees sub-conscious mindso that you they aware of your limitations. Once you identify your limitations, always stay ina positive attitude and cultivate the energy to the people around you and you will be able toreturn to the true nature. Hence, Human Leaders help you to clarify your mind and clear outthe negative clutters in your life.

Applying Human Leadership

Human Leadership takes place everyday in our life. The fundamental of Human Leadershipfocuses on our awareness. You can practise Human Leadership exercises at home. First, youneed to find a quiet place where you are free from distraction from external environment suchas handphone, television and even your children. Then, you can start to look deeper withinyourself especially your thoughts. Among the areas you must deeply reflect are:

What _______ (Person) did for you?

What have you done in return?

What trouble have you caused to _______ (Person)?

The person could be someone close to you. You should start with your mother becauseusually mother has the highest communication and interactions with you. After analysingyour mother, other person whom you should do deep consideration are your grandparents,

partner, siblings, close friends or anyone who is directly or indirectly related to you. Since parents have a close relationship with us (positive/negative way), we must repeat thereflection and repeat to do deep self-communication as many times as we could. After severalsessions, you can start with other relationships.


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When you conduct deep reflection, you must separate the deep thinking in different stages ofyour life. A shorter or a more specific period of time will give better result. Therecommended periods are:

Before entering kindergarten (Less than 5 years old);

During lower primary school (6 – 9 years old); During upper primary school (9 – 12 years old);

During lower secondary school (13 – 15 years old);

During upper secondary school (16 – 18 years old);

During College / University (18 years old and above).

During reflection, you need to see yourself in a different direction. You need to remember theevents factually and try to examine these events honestly. Remember, you are alone. Youneed to look at yourself critically, not subjectively but objectively.

With regards to the time distribution for each question, you should spend about 20% of yourtime for “What _______ (Person) did for you?”; another 20% of time for “What have youdone in return?” and the balance of 60% of time on “ What trouble have you caused to

_______ (Person)?”

For each period of time, you need to spend at least 30 minutes for each person you arereflecting. You do not need to rush to complete the task. The slower your practise it, theimpact is better because you really need to have a deep reflection. We would suggest that youspend at least one (1) hour or more in each session when you conduct the reflection exercise.

Due to your busy schedule, you may break the session into a few shorter sessions. Focus onquestions in relations to each session in your life. First start with your mother, then continuewith other people in your life, but you are to follow the order of significance of theirrelationship. When you have finished reflecting for one cycle, you may start to reflect on nextstage of the period of life.

When you are conducting the reflection, you should try to stay calm and stay in internal

harmony. You should remove all emotions in your life such as anger, sad, disgust, fear, happyand contempt. You must stay as calm as you could. It is not easy for us to enter into this

phase when we start practising this exercise.

When starting to practise self-reflection and communication, our mind was full of flowers. Atfirst, we will fell awful and at times we fell as if we have forgotten something we might startto check my phone and we was easily distracted by external environment. All these

experiences are very common for a newbie. Leaders must remind themselves to “contemplatethe body, diligent, clear thought, and mindful, free from desires and discontent in regard tothe world.”

We started to do deep breathing and observed my inhalation and exhalation slowly and gently.“When feeling a pleasant feeling, I feel a worldly pleasant, when feeling a neutral feeling, I

feel a neutral. Internally and externally you feel the same feeling”. We have to fully


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understand and accept our own feelings for eternity. Take the chance of self-reflection tofully appreciate what is happening around us (DiClemente wt al, 1991).

Since it was very difficult to organise our thoughts, leaders can start to write down three keyquestions on a paper to regulate myself from reflection. After one month, he can decide to

stop writing because practising self-reflection should be a felt activity and not a literary one.The objective of this activity is to enable us to develop deep awareness. Start withvisualisation of our thought and our brain is activated to recall the last incident. In fact, thisactivity is very similar to meditation where we need to do deep thinking. When we becomeaware, we tend to feel very motivated and happy.

When practicing human leadership theory, leaders should start to pay attention to your inner-self. Paying attention is not enough because attention has a short period of time. Awarenessneeds deeper understanding of intention because during awareness, leaders need to reallyunderstand what attention you had encountered. In order to have deep awareness, you need tothrow away your ego, and become pure. At the same time, all negative thoughts and emotionsshould be transformed. These negative thoughts and emotions include:-

Greediness;

Arrogance;

Jealousy;

Impetuous;

Resentment;

Selfishness;

Indifferent; Cheating ;

Depravation;

War;

Competition and negative challenges;

Emptiness; and

Boredom,

It is not important whether you have faith religion in or not. Leaders can gain relief and asense of peace of mind through reflection. By applying Human Leadership, human can bringany organisations to the path of sustainability.

Summary

Human Leadership integrates the power of silence where you will be able to concentrate andfeel pure consciousness. At the same time, clear your inner space to find peace with whathappened in the past and create respect and guidance. Remember, human attitude, speech andintention are form of energy. The energy has great influence not only for a company but alsoon the whole universe. By applying Human Leadership, ordinary leader can transform

yourself to be a super human leader.


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Analyzing Ownership Structure, Company

Performance, And a Director’s Remuneration

Lim Vwee ChinPutra Business School Graduate

Ahmed Razman Abdul LatiffPutra Business School

William G. BorgesPutra Business School

Abstract

Directors’ remuneration has been the central of stakeholder scrutiny and debate in many

countries. The relationship between ownership structure, company performance andMalaysian director’s remuneration has received much less attention. This study intends toexamine the impact of ownership structure, company performance on directors’ remuneration

in Malaysia top 200 public-listed firm in Malaysia from 2010 to 2012. The proxy fordirector’s remuneration includes fees, salary, bonuses, and benefits of kin. The proxy forownership structure is a dummy variable that is one (1) if the firm is a family firm and zero (0)is a non-family firm. The dependent variable (performance) is measured by ROA. Thefindings show that both family firm and company performance is positively related todirector’s remuneration.

Keywords: Director’s remuneration, company performance, ownership structure, corporate

governance, family firm

Introduction

Background

Based on the separate legal entity concept, (Krishnan, L., Rajoo P.and Vergis, A. C. , 2009),the company is, in effect, an artificial person, and therefore needs individuals to represent itand act on its behalf. This important task is often assigned to directors or, collectively, to a

board of directors. Based on section 4 (1) of the Companies Act 1965, a director includes any person occupying the position of director of a corporation, by whatever name, including any


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person acting in accordance with those directors or on the instructions of the directors of acorporation, as an alternate or substitute director. The directors or board of directors are,collectively, the central management agent in the company, responsible for the success orfailure of the company. Therefore, company directors hold the power provided by the law and

their own constitutions to ensure long-term sustainability and profitability of the firm.One of the means to ensure that directors achieve a company’s financial and strategic

objectives is the compensation contract. That is, a competitive remuneration package iscrucial to attract and retain top quality directors and corporate executives. The MalaysianCorporate Governance Blueprint 2011 encouraged the private sector, professional bodies orthose in academia to conduct a study on directors’ remuneration, with the implicit assumptionthat directors should be adequately compensated for the risks and responsibilities they assume.Remuneration policy is thought by many to be one of the most important factors inorganizational success (Jensen and Murphy 1990a), and has been viewed as important in

mitigating conflicts of interest between managers and shareholders in corporations. And ithas been widely recognized that compensation packages could potentially play an importantrole in motivating top managers (Ozkan, N., 2011).

However, most of the empirical evidence on the determinants of director’s remuneration uses

data from developed countries such as UK (Ezzamel and Watson ,1998; Conyon, Peck,andSadler, 2001; Shiwakoti, Ashton, and Keasey (2004). Earlier researchers have usedcompensation as a predictor versus outcome variables. Thus, the main difference betweenthese studies and ours is the use of different variables, such as types of executives sampled,and the regions used for data collection, here.

There is very little known about directors’ remuneration in fast-developing economies suchas those in Southeast Asia. But the high growth rate, exploding foreign investment and fastcapital formation in the region make it an interesting one to investigate. For instance, firms inSoutheast Asia often feature family ownership — to a much greater extent than in the West,for example — and this could result in autocratic control of firms, huge differences in agencycost, and other factors which could significantly impact directors’ remuneration.

The absence of publicly available data, and generally low quality of that which does exist,discourages this type of research in this region. One exception, however, is Malaysia (Dogan

and Smyth, 2002), and others are Hong Kong, where listed firms are required to disclosefairly detailed information on the pay of directors and top management personnel, and India(Ramaswamy et al., 2000), where some limited information on boardroom pay is disclosed.One factor that makes investigating directors’ compensation in Malaysia firms very

interesting, however, is ownership structure, which differs substantially from firms in theindustrialized countries investigated in prior research. That is, many listed firms are majority-owned by individuals and/or an individual’s family— a phenomenon which has implicationsfor corporate governance, firm performance and the setting of senior executives’ pay (La

Porta, 1999; Lawton and Tyler, 2001; Mishra et al., 2001). The management structure of such

firms often is autocratic, leading to understandable concerns that some controllingshareholders misuse power as they please for personal gain (Bond, 1996; Brewer, 1997).


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Problem Statement

The most commonly adopted theoretical and practical solution is to offer the CEO a relativelyhigh level of compensation (Rosen, 1982) and make CEO pay performance-driven — that is,

basing compensation on a company’s share-price performance (Jensen & Meckling, 1976). In

fact, many researchers have studied whether optimal agency contracts have an impact on firm performance (Tosi, Werner, Katz, & Gomez-Mejia, 2000) or strategies (e.g., Jenkins & Seiler,

1990; Sanders, 2001a, 2001b).

The link between a director’s remuneration and corporate performance has been of interest toresearchers since the early 1960s (for instance Marris 1963; Williamson 1964; and Gregg etal 1993). Some studies found a strong relationship between remuneration and performance(for instance Lewellan and Huntsman 1970; Main et. al 1996; and Deckop 1998), whileothers found no significant relationship at all (Gregg et. al 1993; Ezzamel & Watson 1997).

Importantly, however, it has been shown that when a director’s remuneration does notcorrelate with a company’s performance, negative consequences ensue.

Extremely high remuneration for directors has attracted considerable criticism from public,investors, and many in the media. And the perception, whether valid or invalid, has seriousnegative consequences. It is something that troubles majority and minority shareholders(Jiang &Peng 2010; Young et al. 2008). Minority shareholders, who are mainly public

investors, often feel victimized if a company is performing poorly while its directors arereceiving huge remuneration. This sometimes causes investors to lose confidence in theirrespective companies. Sometimes this results in minority shareholders selling their shares.

But other investors, including many institutional shareholders and minority shareholders,went so far as to form a watchdog group, Minority Shareholders Watchdog Group (MSWG),and the group does such things as vote against remuneration agendas at companies’ annual

general meetings. This can create unfavorable news coverage for a company’s management,

harm the company’s reputation, and cause a loss of investors’ confidence in company

management, making it difficult for the company to raise funds in the future. In sum, it canhurt a company’s bottom line.

An excessively generous remuneration package may signal a failure of internal controls bysenior management (Johnston J., 2002) and lead to low morale and poor workforce

performance among other directors. This can a hinder the cooperation between directors inthe executive positions and those in non-executive positions, and between mid-rangemanagers and workers.

Numerous studies have examined the link between directors’ remuneration and corporate size

(for instance, Agrawal 1981; Murphy 1985; and D’Orio 2001); industry (Ely 1991);

diversification (Chen 2006); risk (Core et. al 1999; Abdullah 2006) and human capitalattributes, such as the tenure and age of directors (for instance, McKnight and Tomkins 2004;Clarkson et. al 2005; and Abdullah 2006). Most of these studies involved testing hypothesesand developing models to explain directors’ remuneration using agency theory (Indjejikian1999). There is, however, limited research on the impact of ownership structure on director


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remuneration. Yet it is common knowledge that controlling shareholders with high ownershipconcentration often exercise considerable control through voting, even though they usuallyhave relatively weak cash-flow rights. This combination gives concentrated owners incentiveto expropriate the wealth of other investors and pursue their own interests, which, many

observers have noted, often are contrary to those of minority shareholders (Chen et al., 2011).The incidence of expropriation of minority shareholders by majority shareholders is in factvery common in the business world, due to weak legal protections and/or poorer governancestandards (La Porta et al., 1999, 2000; Johnson et al. 2000; and Peng et al., 2011). Previousresearch has focused on the effects of cash-flow rights and the divergence of control rightsand cash-flow rights (excess control rights) on CEO pay (Masulis et al., 2009; Barontini andBozzi, 2010; and Cao et al, 2011). Other studies have pointed out the effects of concentratedshareholder control type on pay-performance relationship, particularly between state and non-state-owned firms in transition economies, such as that in China. (Kato and Long, 2005; Firth

et al. 2006).

Ownership structure clearly affects the form and level of compensation paid by companies. A positive correlation between managerial ownership and top executive cash emoluments wasfound when ownership reaches as high as 25 percent in small and family-controlled firms,and up to 5 percent in large firms. There is also evidence that top executives with largershareholdings may be using dividends as a way to supplement their cash salaries (Cheung et.al., 2005). Companies tend to rely less on equity-based compensation when companydirectors have large shareholding percentages, and what motivates them to increasecompensation often is the form rather than the level of compensation, and this usually means

focusing on company value. This could explain why equity-based compensation is used moreextensively in firms with more outside directors, who can easily refer to such values (Mehran,1995).

La Porta et al. (1999) noticed that most companies in the world are dominated by families orthe state, and that this is a common practice in Asian countries (Claessens et al. 1999; andTam & Tan 2007). A study by Claessens et al. (1999) revealed that 67.2% of companies inMalaysia are in family hands. So in this country it is very important to determine whether a

public-listed company is family-owned when examining the connection between directors’remuneration and a company’s performance, even though the influence of high family

shareholding on directors’ remuneration is largely a mystery.

Not many studies have been conducted in Malaysia examining directors’ remuneration. Some

studies on the relationship between directors’ remuneration and firms’ performances have

been conducted, by Hassan, S., Christopher, T., & Evans, R.,2003, Santhapparaj’ and Tong,2004, Abdullah, 2006. These researchers used single-study periods and sample sizes ofapproximately 100. Therefore the results make it somewhat difficult to generalize about

public-listed firms in Malaysia. To date, there is no Malaysian research which clearly showsthe impact of ownership structure on directors’ remuneration.


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Objectives

Main objective:

The main objective is to examine the impact of family firms and company performance on

directors’ remuneration in Malaysia.

Specific objectives:

The specific objectives of this research are to empirically examine the relationship between:

a. Family firms and directors’ remuneration.

The aim is to determine whether the fact that a company is a family firm is

significantly related to directors’ remuneration, and the reasons accounting for the

relationship, however strong.

b. Company performance and directors’ remuneration.

Another major question to be clarified is whether company performance is

significantly related to directors’ remuneration, and the reasons why it is or is not.

Our hope is that this study will contribute greatly to the literature in the area of corporategovernance practices among family-owned businesses in Malaysia. Inasmuch as this studyuses a sample of the top 200 public companies listed on Bursa Malaysia, the information is

reliable, and surely will be useful to researchers, Malaysian family businesses, and investorsat large.

Significance of this Work

Ideally, the findings of this study will ask and begin to answer important questions aboutwhether company directors in Malaysia are paid according to company performance, andabout the extent of influence of families on directors’ remuneration when companies are

family-owned. Thus, we seek to provide insights about the compensation levels of directors by Malaysian public-listed companies using two important variables: family firms and

company performance. Other significant factors previously taken into consideration in earlierstudies — including firm size, industry, diversification and risk — will be used as controlvariables. We hope this will contribute significantly to the literature on Malaysian businesses.

Additionally, we hope that the study will help stakeholders — namely Malaysian directors,shareholders, investors and company employees — better understand the determinants ofMalaysian public-listed companies’ pay scales for directors, and the nature of corpo rategovernance practices among Malaysia’s top 200 public-listed companies. The results of thisstudy will, we hope, contribute to promoting fairness in setting directors’ remuneration levels

in Malaysia.

This study is based in large part on academic literature concerning Malaysian directors’


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remuneration from 2010-2012.

Organization

This study will be divided into five parts. The first part lays out the background of the study,

the problem statement, research objectives, and the significance of the study.

The second part covers the theories and existing literature on corporate governance, both indeveloped and developing countries. Then, using the literature and theories related to thegeneral topic area, we offer hypotheses in this section.

The third part explains the methodology used in the study. This includes the research design,sample selection, modeling specifications and definitions of variables and measurements.This part also explains the statistical methods used in the study, namely multiple regressionand panel data analysis.

The fourth part is offers discussion and analysis of the data collected. The result of analysisand discussion will be used to accept or reject the proposed hypotheses.

Finally, the fifth part offers conclusions about the research findings, a discussion about thelimitations of the research, and recommendations for those who conduct further research onthis topic.

Literature Review

Directors’ R emunerationIntroduction

Directors’ remuneration is a popular topic in the media and in scholarly literature. During

each AGM season, a recurring argument among shareholders concerns whether topexecutives are over-paid or under-paid, as well as the best approaches to align the interests oftop executives with those of the firm and shareholders. Hence, financial disclosure (includingdirectors’ remuneration) and appointment of directors have become important agenda topics

during AGM. (Debates concerning directors’ remuneration received special attention duringthe recent worldwide financial crisis.)

Frequently, in previous studies the terms directors’ remuneration, executive compensation,

CEO compensation, board remuneration, managerial remuneration, executive pay, directors’

pay and bosses’ pay are used liberally (Ewers, 2002). Herein, these many terms are usedinterchangeably.

Directors’ Remuneration Studies in Malaysia

From Table 1.1, we see that the majority of studies conducted on remuneration wereconducted in developed countries such as the United States, the United Kingdom, Australia,

Canada and Germany. Not many studies have been undertaken to closely examine the issueof directors’ remuneration in Malaysia. And most of the studies have focused on relationships


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between dir ectors’ remuneration and firms’ performances.

Hassan et al, 2003, found a weak relationship between current-year director remuneration and

current-year performance. They found an even weaker link between directors’ remunerationand financial performance growth measures for the three years from 1996 1998. Santhapparaj

and Tong (2004) found that company performance was positively related to directors’

compensation but, surprisingly, that shareholder funds are negatively related to directors’

remuneration. They argued that when the existing management resigned due to operatinglosses, new management was hired at higher compensation levels, thus depleting theshareholders’ funds.

A positive relationship between company performance and directors’ remuneration w asreported by Hassan, S., Christopher, T., & Evans, R., 2003, and Santhapparaj and Tong,2004. Both Hassan et al and Santhapparaj and Tong used single study periods and samplesizes of approximately 100. Therefore the results might not be generalizable to all public-listed firms in Malaysia.

Abdullah (2006) studied the relationship between firms’ performance, board structure and

ownership structure, related to directors’ remuneration, in distressed companies in Malaysia.

The author implicitly assumed that there is a difference between healthy and distressedcompanies in terms of governance and internal control, with the latter suffering poor

performance. He found no relationship between firms’ performance, governance structure

and board remuneration.

There is no available Malaysian research on the direct impact of ownership structure ondirectors’ remuneration. Jaafar, S. B., Wahab, E. A. A., & James, K. (2012) examined the

relationship between directors’ remuneration and performance in Malaysia family firms,using data from 2007 to 2009. Their focus was mainly on pay for performance, not the impactof company performance on directors’ remuneration. The results showed a positive

relationship between directors’ remuneration and performance. The study did not findevidence that family firms manipulated power and control for personal wealth. Relatedly,Mustapha, M. Z., (2012) investigated the effect of three main variables — corporategovernance, human capital attributes and firm performance —on directors’ remunerationamong 417 Malaysian public-listed companies from 2004 to 2006. They found that family

ownership did positively affect pay performance, but did not shed light on the relationship between family firms and directors’ remuneration.

Agency Theory and Directors’ Remuneration

Agency theory is the most frequently used theory to explain directors’ remuneration (Devers

et al, 2007). Separation of ownership and control contribute to this theory (Berle & Means,1991), and this is often referred to as Agency Problem 1. Using this theory, all individuals areassumed to be risk-averse, rational, and inclined to take actions to maximize personal welfarewhenever there is an opportunity to do so (Jensen & Meckling, 1976). The principal is

looking at long-term sustainability and profitability of the business, which is defined by


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wealth maximization. The agent is looking at profit maximization, normally in the short term,such as in quarterly performance. So the CEO might be reluctant to participate in a goodinvestment opportunity, just to ensure impressive quarterly financial performance. On theother hand, a CEO might undertake aggressive mergers and acquisitions with moderate or

even negative return to shareholders, just to increase firm size. The reasons underlying hisdecisions are easy enough to understand, as he is paid based on the firm’s size (Kroll,Simmons, & Wright, 1990). So it is easy to see why a thoughtful remuneration package,focused on the form and level of remuneration, are crucial in mitigating agency cost (Conyon,2006; Setia-Atmaja, Tanewski, & Skully, 2009 ).

Other agency problems exist between majority shareholders (family firm and non-family firm)and minority shareholders. Majority shareholders are bestowed with greater power in a firm’s

operation. They can influence management decisions for their own gains, at the expense ofminority shareholders (La Porta et al., 1999; Lawton and Tyler, 2001; Mishra et al ., 2001,

Cheng, 2005). Moreover, the management structure of such firms is often autocratic, so somecontrolling shareholders might treat their company as a personal fiefdom for doing whateverthey please (Bond, 1996; Brewer, 1997). In order to mitigate this problem, many people havesuggested that specific corporate governance practices be put in place, so as to minimize thediminishment of minority shareholder rights. This can perhaps be achieved through theempowerment of independent directors and external auditors.

Structure of Directors’ Remuneration

Among the various remuneration packages used, total cash-based remuneration is the most

common choice of companies. The cash consists of fees, salary, bonus and in-kind benefits.This has been widely noted by previous researchers. (Jaafar & Abdul Wahab 2012; Wahab, A.& Rahman A. 2009; Basu et al. 2007; Jensen & Murphy 1990; and Ozkan, 2007). Cashremuneration is a popular incentive, because it tends to maximize directors’ compensation

(Bushman & Smith 2001). Furthermore, Dong & Ozkan et al, 2008, noticed that almost 70%of CEO remuneration in UK companies consists of cash pay.

Cash remuneration alone does not always reflect the extent of benefits directors are receiving.This goes far in explaining, perhaps, why weak or even no significant linkage exists betweencash remuneration and company performance. Long-term variable pay, such as stock options,long-term incentive performance plans and pension plans need to be included in research ondirectors’ remuneration, if findings are to be regarded as reliable (Li & Srinivasan, 2011,

Michiels 2013).

Farmer et al, 2013, suggested using basic pay, bonus pay and long-term pay to compensatedirectors. But the disclosure of full remuneration packages in annual reports is not a common

practice in Malaysia; only cash remuneration is disclosed. Therefore, regrettably, only totalcash remuneration is used in this study.

Family Firms


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Defining family ownership is a difficulty for business researchers, as family firms have beendefined in many ways. First, family firms are defined based on the degree of ownership andmanagement by family members (for example Barry, 1975, and Barnes and Hershon, 1976).Second, family firms sometimes are defined by the degree of family involvement (Davis,

1983; Beckhard and Dyer, 1983). Also, some researchers actually view family firms as thosewhose CEOs are either the founders or descendents of the founder (Sraer and Thesmar , 2006;Mishra and McConaughy, 1999; and McConaughy et al,1998). Other researchers haveconsidered factors such as the level of equity held by families, or a family member’s

involvement on the board of directors (Yammeesri and Lodh, 2004; Anderson and Reeb,2003; and Yeh et al., 2001).

Family Firms in Malaysia

Most business organizations in the world begin their operations with family ownership. A

study conducted by La Porta et al, 1999, found that most of the twenty largest public-tradedcompanies in twenty-seven countries around the world began this way. Hence, familyownership is very common and significant. Among the nine East Asian corporations (in HongKong, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, Taiwan andThailand), Malaysia has the third largest ownership concentration, trailing only Thailand andIndonesia. When the voting rights increase from 10% to 20%, Malaysian family-control

ownership increases from 57.7% to 67.2% (Claessens et al, 2000). On average, the largestshareholders among all public-listed companies in Malaysia held 30% of outstanding sharesin 1998, with the top five shareholders owning 58.8%. Family ownership was found in 43%of the main board companies of Bursa Malysia from 1999 to 2005 (Claessens et al, 2000).

Family Firms and Directors’ Remuneration

Some researchers have noted that family businesses perform better than non-family businessin many ways (e.g., Anderson & Reeb, 2003 and Beehr et al, 1997). This is possibly due tothe alignment of principal-agent goals and commonly shared values, along with a high levelof trust among family members. Agency theorists have argued that a high percentage offamily ownership reduces the monitoring cost, since owners have a responsibility to monitortheir managers (Jensen & Meckling, 1976). Therefore, the theory goes, family ownership

minimizes free-rider agency cost and increases companies’ financial performance (Johnson,Hoskisson, & Hitt, 1993 and Zahra & Pearce, 1989).

Stewardship theory posits that managers and owners are stewards whose behaviors arealigned with the objectives of their principals. They are loyal to the company and interested

in achieving an organization’s mission (Davis et al., 1997, 2000). So family owners, likeothers, have deep emotional investment in their companies (Bubolz, 2001); their familywealth, personal achievements, even public fame are tied to business (Ward, 2004).Incentive-based compensation may be used less for family members because their interestsare aligned with one another moreso than is the case with non-family companies (Fernando

Muñoz-Bullón1 and María J. Sánchez-Bueno, 2014).


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This theory might help explain scenarios where substantial shareholding is associated withlower direct compensation (Deckop, 1988 and Ramaswamy et al., 2000). In reality, mostfamily directors have high shareholdings and receive substantial cash dividends from theshares owned. At the same time, their modest or low direct compensation gives directors a

lever to reduce wage demands from lower-level managers (Firth et al., 1996). In other words,high family ownership concentration, multiple family membership on boards, can negativelyimpact (non-family) directors’ compensation (Fernando Muñoz-Bullón1 and María J.Sánchez-Bueno, 2014).

Stewardships problems do exist in family-owned companies. For instance, family ownersmay be more receptive to favoritism, nepotism and excessive expenses to secure employment,

preferential treatment, or other non-financial privileges that benefit themselves at the expenseof minority shareholders (Le Breton-Miller, Miller, & Lester, 2011 and Lim, Lubatkin, &Wiseman, 2010). Majority owners may expropriate assets from the minority owners through

excessive remuneration paid to directors (Cheng et. al., 2005). Also, they may deny certain privileges to non-family shareholders while providing them to family members, even when providing such privileges may be detrimental to overall corporate wealth (Fernando Muñoz-Bullón1 and María J. Sánchez-Bueno, 2014).

Company Performance

Company Performance and Directors’ Remuneration

Company performance is one of most important subjects in the business world, and has been

studied by many researchers. Some of these studies have attempted to ascertain therelationship between company performance and directors’ remuneration. Empirical studies

from the United States and the United Kingdom found a strong positive relationship betweenthe two (Lewellen and Huntsman 1970 and Murphy, 1985).

A study conducted for large, listed Spanish companies for the period 1990 to 1995 found asignificant positive relationship between corporate performance and directors’ remuneration

(Crespi and Claden, 2003). Similar results were also found in Germany (Kaplan, 1994 andSchwalbach and Grasshoff, 1997), Italy (Brunello et. al 1999), Japan (Kato and Rockel 1992and Kaplan, 1994, Canada (Zhou, 2000) and Denmark (Eriksson and Lausten, 2000). In

Australia, though, few studies found a significant relationship between the two variables(Matolcsy, 2000 and Merhebi et al, 2006).

On the other hand, some researchers found evidence supporting contract theory, which holdsthat company performance has a significant effect on managerial salary (Cooley, 1979) or

bonuses (Barkema & Pennings, 1998). Some scholars found that excellent company performance justifies high remuneration to CEOs (e.g., Kaplan, 2008 and Beatty & Zajac,1994). And executive compensation has been found to be associated significantly related tocompany performance, as measured by earnings per share and total assets (Kang, L. S. &Payal, 2009). On the other hand, some studies found a weak relationship (Main, 1991 andGregg et al, 1993), while Randøy and Nielsen (2002) found no relationship between


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executive remuneration and company performance in their study on Norwegian and Swedishcompanies.

Among private companies, remuneration of board members is correlated with operationrevenue, net income and total assets. But payment incentives for senior managers are

negatively correlated with operation revenue, net income, and total assets. Overall, it can beconcluded that empirical findings do not provide consistent results between CEO pay andfirm performance. In fact, a meta-analysis conducted by (Tosi et al., 2000) estimated thatabout 40% of variance in total CEO pay is contributed by firm size and only 5% attributableto firm performance.

Research Framework

Hypotheses

Based on the readings and studies completed, hypotheses for this research are:

Hypothesis 1: There is a significant association between family firms and directors’

remuneration

Hypothesis 2: There is a significant association between company performances

Methodology

Research Design

The relationships involving family firms, company performance and directors’ remuneration

can be determined quantitatively, as previous researchers have done. This part of our study

describes how the study is conducted, how data are collected and analyzed, and how thehypotheses are tested. To test the research hypotheses, the study uses a panel data set of the

Independent Variables

a. Family Firmb. Company Performance

Dependent Variables

Directors’ Remuneration

Control Variables

a. Firm Size

b. Firm Age

c. Debt Variable


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top 200 Malaysian Public-Listed Companies of 2010-2012.

Sampling Design

This study used top 200 Malaysian companies listed in Bursa Malaysia based on their market

capitalization, extracted from Capital IQ in February 2014. Although 200 samples werecaptured, only 116 samples were used for analysis (Figure 2). Samples from banking financeand insurance sectors were excluded, as the industry is regulated under The Banking andFinancial Act (BAFIA), 1989. Under this Act, the financial institution (FIS) is allowed tomake portfolio investments in non-financial businesses up to a maximum of 20% of FIsshareholders’ funds and up to 10% of the issued share capital of a company in which the

investment is made (Amran & Ahmad 2011).

Figure 2: Screening criteria of samples

Top 200 Malaysia public-listed companies’

samples are selected. (Please refer to

Appendix I.)

Samples from the following industries are

included: Energy, Materials, Industrials,

Consumer Discretionary, Consumer Staples,

Healthcare, Information Technology,

Telecommunication Services. (Please refer to

Appendix II.)

(Please refer to Appendix III.)

The data for the companies must be available

for the three consecutive years in order to be

included in the sample.

Capital IQ Database

Geography locations:

Malaysia

Market Capitalization

Rank 1-200 companies

(based on latest 5 years

historical rate, MYR)

Industry classification:

Exclude Finance, Banking,insurance, investment industry

Financial Ratios:

Total Assets, Return on Assets and

Long term debt data for financial

year 2010, 2011, 2012

116 samples are

collected


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Measurement of Independent Variables

Family Firms

The effect of family firms in this study is captured thusly: a dummy variable is one (1) if the

firm is a family firm and zero (0) otherwise. This means of measurement has been widelyused in prior research (e.g., Anderson & Reeb 2003 and Gomez-Mejia et al, 2003). In thisstudy, a family firm is one with a minimum of two family members in its management or onits board of directors, and a minimum of two family directors with ownership (direct andindirect shareholdings) of a minimum of 20% of the company. This definition of a family

company is consistent with that used in previous studies (La Porta, Lopez De-Silanes &Shleifer, 1999 and Anderson & Reeb, 2003). To determine the direct and indirectshareholding, the information was hand-collected from companies’ annual reports via Bursa

Malaysia using a shareholding statistics-list of the thirty (30) largest shareholders. Lists ofshareholding are ranked in descending order, including firms or individuals.

Firm Performance

Return on Assets (ROA) and Return on Equity (ROE) are the common accounting-basedvariables used to determine company performance (Michiels et al, 2013). ROA is measured

as the ratio of net income to total assets; ROE is measured as the ratio of net income to totalequity. ROA is the best measure for current performance, whereas ROE is a better measure ofexecutives’ overall ability (Cornett et al. 2007).

A majority of researchers who study the relationship between remuneration and performanceuse ROA as a measure of firm performance (Michiels, 2013 and Ibrahim & Samad, 2011).Hence, ROA is used to measure company performance in this study. The data were obtainedvia Capital IQ Database from 2010 to 2012. (Figure 2)

Measurement of Dependent Variables

Directors’ Remuneration

Directors’ remuneration has been used as a dependent variable by previous researchers to

investigate pay-for-performance relationships. (e.g., Michiels, et al, 2013 and Capezio,Shields, & O’Donnell, 2011). Following Michiels, et al and others, logarithms of the CEOcompensation variable were applied to reduce the impact of outliers. Additionally, the logtransformation is the most common way to correct for non-normality, especially when thevariable has a positive skew (Hair, Anderson, Tatham, & Black, 2006), which is true for our

variable directors’ compensation.


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For each sample obtained from the Capital IQ Database, compensation information washand-collected from the directors’ remuneration section of the annual report, which can be

accessed via the Bursa Malaysia website (http://www.bursamalaysia.com/market/listed-companies/). Total directors’ remuneration was used, instead of using the remuneration of

CEOs and other directors separately. This is due to limited disclosure of remunerationinformation by Malaysian listed companies, despite the recommendation by MCCG 2012 todisclose directors’ remuneration individually (Mustapha, 2012). On the other hand, the use of

board members’ remuneration is perhaps better for this study than executive remuneration, as

the boar d as a whole affects a company’s performance greatly (Dogan and Smyth, 2002).

Components of remuneration for this study consist of fees, salary, bonuses and in-kind benefit, which are short-term pay. Long-term pay was not included in calculation of directors’remuneration, due to unavailability of data. Long-term pay that is measured as the value ofoptions and share performance vested in the current year, plus grants of share options under

ESOS (Farmer et al, 2013). This dependent variable has been used by previous researchersstudying pay-for- performance (e.g., Michiels, e. al, 2013 and Capezio, Shields, & O’Donnell,2011).

Measurement of Control Variables

Firm Size

The size of a firm can affect economic and financial performance. A natural log of bookvalues of total assets was used to measure firm size. This is similar to methods used in

previous studies (e.g., Monteduro, 2014 and Jaafar & Wahaab, 2012).

Firm Age

Firm age refers to the number of years elapsed since the company was incorporated (Ibrahim

& Samad, 2011 and Martínez, Stöhr &Quiroga, 2007).

Debt Variable

Debt variable is measured using capital structure, dividing long-term debt by total assets(Jaafar & Wahaab, 2012 and Ibrahim & Samad, 2011). Cheung et al, 2005, looked into theconcentration of ownership and directors’ compensation in 412 Hong Kong companies

sampled from1995 to 1998, using the control-debt variable whereby a measure is long-termdebt divided by total assets.

Data Analysis

Data are analyzed using the Microsoft Excel Data Analysis tool consisting of descriptiveanalysis, correlation, and regression. Descriptive analysis is conducted to ensure that datacollected are normally distributed to eliminate statistical errors during the interpretation ofresults that will affect the overall result. Correlation analysis is conducted to ensure there isno multicollinearity, as this would affect the accuracy of regression analysis result. And


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regression analysis is used to confirm the significance of the relationship between thedependent and independent variables.


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Results

Introduction

Upon data collection and review, the data will be analyzed and discussed in this part of the

study. This section will begin with descriptive analysis of the data collected, and later utilizecorrelation analysis and regression analysis in order to prove or reject the hypotheses.

Descriptive Analysis

Panel A of Table 4.1 presents the descriptive statistics (minimum, maximum, mean, andstandard deviation) of directors’ remuneration, which is represented by total cash

remuneration and Ln (total cash remuneration). The skew of directors’ remuneration is

5.4648, showing that the original value to directors’ remuneration (RM million) does notreflect a normal distribution. Hence, the Ln value of total cash remuneration is used; the skew

is 0.4386, which is within the range of +2 and -2. Money amounts are expressed in RinggitMalaysia. The mean pay of the directors’ remuneration is RM 7.8123 million, and the median

is RM4.5015 million.

Panel B presents family firm summary statistics. Approximately 56% of the firms in oursample are non-family-owned and nearly 44% of the firms are family-owned. Panel C ofTable 4.1 reports the descriptive statistics for the performance components. Return on Assetsindicates the mean and median are 0.0829 and 0.0646, respectively, and the maximum is0.4480. Panel D of Table 4.1 presents the control variable results. The average firm size isRM7.7055 million, with a maximum of RM11.3904 million. Other firm characteristicsinclude debt, with a mean of RM110,900 and a median of RM58,900, and with a maximumof RM660,600. Furthermore, the mean and media firm age are 31 and 27 years, respectively,with a maximum of 106 years.


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Table 4.1: Descriptive Analysis for Control Variables

No ofObservations

Mean MedianStandardDeviation

Minimum Maximum Kurtosis Skew

Panel A: Director RemunerationDIRREM (Million) 342 7.8123 4.5015 13.6447 0.3630 117.7000 35.6334 5.4648Ln(DIRREM) 342 8.4169 8.4122 0.9476 5.8944 11.6759 1.1834 0.4386

Panel B: Family FirmFAMFIR 342 0.4474 0.0000 0.4980 0.0000 1.0000 -1.9663 0.2126

Panel C: PerformanceROA 342 0.0829 0.0646 0.0693 -0.0055 0.4480 5.1133 1.9963

Panel D: Control VariablesSIZE (Million) 342 7.7055 7.4878 1.4172 4.0500 11.3904 -0.1211 0.4382DEBT 342 0.1109 0.0589 0.1318 0.0000 0.6606 2.0839 1.4566FIRM AGE 342 31.5322 27.0000 21.8069 0.0000 106.0000 2.6637 1.4948

Notes: The sample consists of 114 publicly traded, nonfinancial firms from 2010 to 2012 listed on Bursa Malaysia. DIRREM is the total director

remuneration that includes director fees and allowances, salary, bonus and benefits of kin. ROA is the net income divided by total assets. ROE is

the net income divided by total equity. FAMFIR are firms which are owned by family members with a minimum 20% shareholding where at least

one family member is on the board. SIZE is logarithm of total assets. DEBT is the long-term debt over total assets and FIRM AGE is the number

of years since incorporation.


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Table 4.1.1 Average Market capitalization, company size and performance for different ownership structures of

Malaysia’s Top 200 companies from 2010-2012

Types of Firms No. of samplesAverage MarketCapitalization(RM Million)

Averagecompany size

Ln (Total Asset)

Average company performance

(ROA)

Non-Family firm 63 7,423.86 8.81 8.24Family Firm 51 6,779.20 8.54 8.41Total 114

Table 4.2: Correlation Analysis for Dependent and Control Variables

ROA SIZE DEBT FIRM

AGE FAMFIR Ln (DIRREM)

ROA 1

SIZE -0.37623 1

DEBT -0.13488 0.515475 1

FIRM AGE 0.182326 0.218006 -0.08171 1

FAMFIR -0.05887 -0.09399 -0.1198 -0.113 1

Ln (DIRREM) 0.041395 0.522118 0.246435 0.113322 0.162539 1

Pearson correlations are reported in the table: ROA is the net income divided by total assets.

SIZE is logarithm of total assets and Debt is the long-term debt over total assets. FIRM AGE is

the number of years since incorporation. FAMFIR is a dummy with 1= family firm and 0= non-

family firm. DIRREM is the total director cash remuneration.


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Academic Journal of Business Excellence; Vol. 1, No. 1; 2016ISSN 2413-8266

Published by IIC University of Technology


Correlation Analysis for Dependent and Control Variables

Results of correlation analysis for independent variables and controlled variables are shownin table 4.2. According to Guildford’s Rule,

academic journal of business excellence 1 2016

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