Performance: Empirical Evidence From Malaysian Banking Industry

Nazaria Md Aris, Suzila Mohamed Yusof, Lim Jia Wen

Abstract


Various theories and empirical studies have been applied and proposed to establish and explain how corporate governance practices are related to banks financial performance. This study concerns the relationship between corporate governance variables and bank performance in Malaysia. The data collected and analysed in this research is from quarter one year 2011 to quarter four year 2016. Various determinants have been identified namely return on equity(ROE) for bank performance measurement, CEO duality, board size, and board gender for corporate governance. Control variables are bank size and bank leverage. The methodologies adopted in this research includes descriptive analysis, correlation analysis, Pooled Ordinary Least Square (OLS) regression, Diagnostic Tests (Jarque-Bera Normality Test, Wooldridge Test and Variance Inflation Factor), Breusch-Pagan (BP) Lagrange Multiplier test, and Hausman test. In this study, the findings indicate that strong board composition and bank leverage were experience better performance.


Full Text:

PDF

References


Abdullah, H., & Valentine, B. (2009). Fundamental and ethics theories of corporate governance. Middle Eastern Finance and Economics, 4(4), 88-96.

Abidin, Z. Z., Kamal, N. M., & Jusoff, K. (2009). Board structure and corporate performance in Malaysia. International Journal of Economics and Finance, 1(1), 150-164. https://doi.org/10.5539/ijef.v1n1p150

Ahmad, R., Said, R., & Arsad, S. (2017). The Board Governance Mechanism and the Effect of Concentration Ownership on Malaysia Companies Performance, International Journal of Academic Research in Business and Social Sciences, 7(2), 2222-6990.

Al-Saidi, M., & Al-Shammari, B. (2013). Board composition and bank performance in Kuwait: an empirical study. Managerial Auditing Journal, 28(6), 472-494. https://doi.org/10.1108/02686901311329883

Bank Negara Malaysia. (2016). Financial stability and payment systems report 2016. Retrived from http://www.bnm.gov.my/files/publication/fsps/en/2016/fs2016_book.pdf

Bank Negara Malaysia. (2017). List of licensed financial institution. Retrieved from http://www.bnm.gov.my/index.php?ch=fs&pg=fs_mfs_list&ac=118〈=en

Bebeji, A., Mohammed, A., & Tanko, M. (2015). The effect of board size and composition on the financial performance of banks in Nigeria. African Journal of Business Management, 9(16), 590-598. https://doi.org/10.5897/AJBM2015.7797

Belhaj, S., & Mateus, C. (2016). Corporate governance impact on bank performance evidence from Europe. Corporate Ownership & Control, 13(4), 583-597. https://doi.org/10.22495/cocv13i4c4p8

Boussaada, R., & Karmani, R. (2015). Did board of directors have an impact on MENA bank performance? International Journal of Economics and Finance, 7(4), 46-56. https://doi.org/10.5539/ijef.v7n4p46

Cadbury, A. (1992). Report of the committee on the financial aspects of corporate governance. London: Gee Professional Publishing Ltd.

Chang, A. A. L. (2004). The impact of corporate governance practices on firm’s financial performance evidence from Malaysian companies. ASEAN Economic Bulletin, 21(3), 308-318. https://doi.org/10.1355/AE21-3D

Chen, G. P. (2005). Intellectual capital performance of commercial banks in Malaysia. Journal of Intellectual Capital, 6(3), 385-396. https://doi.org/10.1108/14691930510611120

Dao, T. T. B., & Hoang, T. H. G. (2012). Corporate governance and performance in Vietnamese commercial banks. Journal of Economics and Development, 14(2), 72-95.

Davis, J. H., Schoorman, F. D., & Donaldson, L. (1997). Toward a stewardship theory of management. Academy of Management Review, 22(1), 20-47. https://doi.org/10.5465/amr.1997.9707180258

Donaldson, L., & Davis, J. H. (1991). Stewardship theory or agency theory: CEO governance and shareholder returns. Australian Journal of Management, 16(1), 49-64. https://doi.org/10.1177/031289629101600103

Fanta, A. B., Kemal, K. S., & Waka, Y. K. (2013). Corporate governance and impact on bank performance. Journal of Finance and Accounting, 1(1), 19-26. https://doi.org/10.11648/j.jfa.20130101.12

Fraser, L. M., & Ormiston, A. (2013). Understanding financial statements (10th ed.). London, UK: Pearson Education.

Gujarati, D. N., & Porter, D. C. (2003). Basic econometrics (ed.). New York: McGraw-HiII.

Haniffa, R., & Hudaib, M. (2006). Corporate governance structure and performance of Malaysian listed companies. Journal of Business Finance & Accounting, 33(7‐8), 1034-1062. https://doi.org/10.1111/j.1468-5957.2006.00594.x

Isik, O., & Ince, A. R. (2016). Board size, board composition and performance: An investigation on Turkish banks. International Business Research, 9(2), 74-84. https://doi.org/10.5539/ibr.v9n2p74

Jadah, H. M., Murugiah, L. A., & Adzis, A. B. A. (2016). The effect of board characteristics on Iraqi banks performance. International Journal of Academic Research in Accounting, Finance and Management Science, 6(4), 205-214.

Kilic, M. (2015). The effect of board diversity on the performance of banks: Evidence from Turkey. International Journal of Business and Management, 10(9), 182. https://doi.org/10.5539/ijbm.v10n9p182

Kyereboah-Coleman, A., & Biekpe, N. (2006). Do boards and CEOs matter for bank performance?: A comparative analysis of banks in Ghana. Corporate Ownership and Control, 1-18. https://doi.org/10.22495/cocv4i1p10

Liang, Q., Xu, P., & Jiraporn, P. (2013). Board characteristics and Chinese bank performance. Journal of Banking & Finance, 37(8), 2953-2968. https://doi.org/10.1016/j.jbankfin.2013.04.018

Liew, P. K. (2007). Corporate governance reforms in Malaysia: The key leading players’ perspectives. Corporate Governance: An International Review, 15(5), 724-740. https://doi.org/10.1111/j.1467-8683.2007.00618.x

Lukas, S., & Basuki, B. (2015). The implementation of good corporate governance and its impact on the financial performance of banking industry listed in IDX. The International Journal of Accounting and Business Society, 23(1), 47-72.

Maher, M., & Andersson, T. (1999). Corporate governance: Effects on firm performance and economic growth. OECD Working Papers. McGraw-Hill. https://doi.org/10.2139/ssrn.218490

Muda, M. (1995). Financial Positioning of Commercial Banks and Its Implications to Bank Management. Faculty of Business and Management, Universiti Kebangsaan Malaysia.

Nahar, A. S. (2004). Board composition, CEO duality and performance among Malaysian listed companies. Corporate Governance: The international journal of business in society, 4(4), 47-61. https://doi.org/10.1108/14720700410558871

Onakoya, A. B., Ofoegbu, D. I., & Fasanya, I. O. (2012). Corporate governance and bank performance: A pooled study of selected banks in Nigeria. European Scientific Journal, ESJ, 8(28), 155-164.

Pathan, S., & Faff, R. (2013). Does board structure in banks really affect their performance? Journal of Banking & Finance, 37(5), 1573-1589. https://doi.org/10.1016/j.jbankfin.2012.12.016

Pathan, S., Skully, M., & Wickramanayake, J. (2007). Board size, independence and performance: An analysis of Thai banks. Asia-Pacific Financial Markets, 14(3), 211-227. https://doi.org/10.1007/s10690-007-9060-y

PwC. (2012). PwC Alert: Malaysian Code on Corporate Governance 2012. PwC Alert, (103). Retrieved from https://www.pwc.com/my/en/assets/publications/pwcalert103-cg.pdf

Saha, A., Ahmad, N. H., & Yeok, S. G. (2016). Evaluation of performance of Malaysian banks in Risk Adjusted Return on Capital (RAROC) and Economic Value Added (EVA) Framework. Asian Academy of Management Journal of Accounting and Finance (AAMJAF), 12(1), 25-47.

Said, R. M., & Tumin, M. H. (2011). Performance and financial ratios of commercial banks in Malaysia and China. International Review of Business Research Papers, 7(2), 157-169.

San, O. T., & Gan, S. S. (2013). Do family-owned banks perform better? A study of Malaysian banking industry. Asian Social Science, 9(7), 124-135. https://doi.org/10.5539/ass.v9n7p124

Securities Commission Malaysia. (2012). Malaysian Code on Corporate Governance 2012.

Sheikh, N. A., & Karim, S. (2015). Effects of internal governance indicators on performance of commercial banks in Pakistan. Pakistan Journal of Social Sciences (PJSS), 35(1), 77-90.

Sundaram, A. K., & Inkpen, A. C. (2004). Stakeholder theory and “The corporate objective revisted”: A reply. Organization Science, 15(3), 370-371. https://doi.org/10.1287/orsc.1040.0067

Tomar, S., & Bino, A. (2012). Corporate governance and bank performance: Evidence from Jordanian banking industry. Jordan Journal of Business Administration, 8(2), 353-371.

Zabri, S. M., Ahmad, K., & Wah, K. K. (2016). Corporate governance practices and firm performance: Evidence from Top 100 public listed companies in Malaysia. Procedia Economics and Finance, 35, 287-296. https://doi.org/10.1016/S2212-5671(16)00036-8

Zikmund, W. G., Babin, B. J., Carr, J. C., & Griffin, M. (2013). Business Research Methods (9th ed.). Mason, OH: South-Western.

Zulkafli, A. H., & Samad, F. A. (2007). Corporate governance and performance of banking firms: Evidence from Asian emerging markets. Issues in Corporate Governance and Finance, 12, 49-74. https://doi.org/10.1016/S1569-3732(07)12003-X




DOI: https://doi.org/10.5296/jpag.v9i3.15104

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.

Journal of Public Administration and Governance  ISSN 2161-7104

Copyright © Macrothink Institute

'Macrothink Institute' is a trademark of Macrothink Institute, Inc.

To make sure that you can receive messages from us, please add the 'macrothink.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.