Corporate Governance Mechanisms, Executive Compensations On Professional Misconduct In Malaysia : The Impact On Share Price Performance
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Date
2014-05
Authors
Ong, Shu Yi
Journal Title
Journal ISSN
Volume Title
Publisher
Universiti Sains Malaysia
Abstract
Professional misconduct activities has been hogging the headline for the past decade, such as fraud, accounting issues, controversial offer and so on. This issues has attracted many researches from corporate governance analysts, government, academician, policy makers and the general public especially after the serial of financial crisis. Numerous literature has laid down the reasons behind the occurrence of misconduct activities. Most of them are due to separation of ownership and control as suggested by agency theory. On the other hand, this research also covers the implication of misconduct activities towards share prices.
Due to the weaknesses in corporate governance structure that the shareholders or potential investors are aware of, in order to continually boost the investors’ confidence and to ensure a steady economic growth, the move to build up stronger corporate governance structure is essential. Thus, using a sample of 44 misconduct companies and 42 no misconduct companies listed in the Main Board of Bursa Malaysia in, this study is conducted to determine the factors like corporate governance mechanism, executive compensation and so on that affect professional misconduct in Malaysia public listed companies as well as the impact of these misconduct activities towards company share prices.
Hence, the logistic regression model is used to estimate professional misconduct from corporate governance mechanisms and executive compensation. From the "Percent Correct Predictions" statistic it shows the overall model is correctly predicted with 78 percent. In layman terms, the likelihood of the happening of professional misconduct is 78 percent. The model covers an extensive range of corporate governance variables. Nevertheless, this study results has found the linkage between corporate governance mechanisms (duality role and board size) and professional misconduct is very strong as suggested by agency theory. Most of the policy makers are aware regarding the danger of duality role and start incorporating such elements in their policy such as Philippines and Singapore. However, board’s independence, audit committees, executive compensation, firm size, debt over equity and big4 audit firm are found to be inconclusive towards professional misconduct.
Model 2 using normal regression analysis, results shown that professional misconduct impact the share price negatively. In the media era, information and news plays an important role in representing a company reputation. Such misconduct activities news if are to be spread, investors or potential investors will lose confidence towards the company. Hence, this study further proves the importance to avoid the occurrence of professional misconduct activities.
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Keywords
Corporate governance mechanisms , on professional misconduct