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    Corporate Governance and Financial Performance

    (A Study of Malaysian Listed Companies)

    Amir Ranjbar

    CGA070054

    Supervisor:

    Dr. Cyril Hilaris Ponnu

    University Malaya

    03/05/2009

    Submitted to the Graduate School of Business Faculty of Business

    and Accountancy University of Malaya, in partial fulfillment of the

    requirements for the degree of Master of Business Administration

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    Acknowledgement

    To my best friend and wife who always was, is, and would

    be my best support.

    To my parents who always encourage and influence me in

    all aspects of my life.

    I am also very grateful to my supervisor and lecturer who

    have provided clues, reviews as well as critical comments

    and suggestions to improve my work.

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    Table of Contents

    Acknowledgement............................................................................................................. 2

    List of Tables .................................................................................................................... 6

    List of Figures ................................................................................................................... 7

    Abstract ............................................................................................................................. 8

    1. Introduction................................................................................................................. 10

    1.1. Background of the Problem ................................................................................. 11

    1.2. Problem Statement ............................................................................................... 13

    1.3. Objectives of the Study ........................................................................................ 13

    1.4. Summary and Organization of the Remaining Chapters ..................................... 15

    2. Literature Review ....................................................................................................... 18

    2.1. Corporate Governance in Malaysia ..................................................................... 18

    2.2. The Malaysian Legal, Regulatory and Institutional Structure ............................. 18

    2.3. Formation of New Governing Bodies .................................................................. 25

    2.4. Corporate Governance, Ownership and Performance ......................................... 26

    2.5. Corporate Ownership and Control in Malaysia ................................................... 28

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    2.8. Does Firm Performance Affect Board Composition? ......................................... 34

    2.9. Why Board Composition Has Become a Hot Issue in Malaysia? ....................... 35

    2.10. CEOChairman Duality ..................................................................................... 37

    3. Methodology ............................................................................................................... 38

    3.1. Determinants of Financial Status of Companies ................................................. 38

    3.2. Determinants of Corporate Governance .............................................................. 40

    3.2.1. TDI Board Sub-Indexs Notes ...................................................................... 43

    3.2.2. TDI Disclosure Sub-Indexs Notes ............................................................... 44

    3.2.3. TDI Shareholder Sub-Indexs Notes ............................................................ 49

    3.3. Controlling Variables ........................................................................................... 51

    3.4. Sources of Data .................................................................................................... 53

    3.5. Theoretical Framework and Main Research Hypotheses .................................... 55

    3.6. Scope of the Study ............................................................................................... 57

    4. Data Analysis and Results .......................................................................................... 59

    4.1. Descriptive Analysis ............................................................................................ 59

    4.2. Correlation between Independent Variables ........................................................ 62

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    6. References................................................................................................................... 78

    Appendix A: Financial Status of Companies (Dependent Variables) ............................ 81

    Appendix B: Financial Status of Company (Independent Variables) ............................ 87

    Appendix C: Management and Ownership of Company ................................................ 93

    Appendix D: TDI, TDI-Board, TDI-Disclosure, and TDI-Shareholders ..................... 100

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    List of Tables

    Table 1: Descriptions of La Porta's Factors .................................................................... 20

    Table 2: Comparison of Legal Protection and Accounting Standards in various

    Countries. ........................................................................................................................ 24

    Table 3: Structure of the Transparency and Disclosure Index (TDI). ............................ 41

    Table 4: Estimation of effect of Independent Variables on Dependent Variables ......... 57

    Table 5: Descriptive Data for Management and Ownership Data .................................. 59

    Table 6: Dependent Variables Descriptive Analysis ...................................................... 61

    Table 7: Corporate Governance and Ownership Correlation Matrix ............................. 62

    Table 8: ROA as Dependent Variable ............................................................................ 63

    Table 9: Tobins as Dependent Variable ........................................................................ 64

    Table 10: Dividend/Earning as Dependent Variable ...................................................... 65

    Table 11: Dividend/Sales as Dependent Variable .......................................................... 66

    Table 12: Altman's Z-Score as Dependent Variable....................................................... 67

    Table 13: Dept/Assets as Dependent Variable ............................................................... 68

    Table 14: Debt/Equity as Dependent Variable ............................................................... 68

    Table 15: ROA as Dependent Variable .......................................................................... 70

    Table 16: Tobin's Q as Dependent Variable ................................................................... 71

    Table 17: Dividend /Earning as Dependent Variable ..................................................... 71

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    Table 21: Debt / Equity as Dependent Variable ............................................................. 73

    Table 22: Regression Summary ...................................................................................... 74

    List of Figures

    Figure 1: Theoretical Framework ................................................................................... 56

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    Abstract

    The existing studies often find statistically controversial effects of corporate

    governance and ownership on firm financial performance in developed countries.

    Unfortunately, there are rare empirical studies on emerging markets while they often

    show wider variations in corporate governance practices, which may have an impact

    on firm performance and dividend policy.

    A good example in this field is Malaysia. After independence in 1957, Malaysia has

    faced many challenges such as riots in 1969 and financial crises in 1997. These

    factors caused many reforms in corporate ownership and governance rules in this

    country. This study wants to find out how corporate governance and ownership can

    affect performance of Malaysian listed companies. This study is important and new in

    two ways. First, Malaysia is a fast developing country and in order to accelerate their

    progress and avoid any interruption, they tried to accept best practices in corporate

    governance during last decade. We want to examine the effect of these changes on

    reality and on the performance of Malaysian listed companies. Second, there is no

    similar research in Malaysia in this area. The result of this research can help to see the

    real effect of Bursa Malaysia policies to regulate market and since this research is

    quantitative, its results can illustrate to what degree corporate governance rules and

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    The data used in this research are secondary data gathered from listed companies in

    main and second Bursa Malaysia boards. By regression analysis, we tried to find out

    to what extent corporate governance is acting successfully.

    The results of this study reveal that corporate governanc

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