Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs)

The aim of this paper is to examine the effectiveness of board monitoring mechanisms in Government Linked Companies (GLCs) in Malaysia. Mainly it focuses on how the introduction of the transformation policy, which emphasizes strengthening the board effectiveness, would lead to an improvement in the...

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Main Authors:	Mohammed Shawtari, Fekri Ali, Mohamad, Muslim Har Sani, Ab. Rashid, Hafiz Majdi, Salem, Milad Abdelnabi
Format:	Article
Language:	English
Published:	VIRTUS INTERPRESS 2015
Subjects:	HF5601 Accounting. Bookkeeping HG4001 Financial management. Business finance. Corporation finance.
Online Access:	http://irep.iium.edu.my/45167/ http://irep.iium.edu.my/45167/ http://irep.iium.edu.my/45167/1/45167.pdf

id	iium-45167
recordtype	eprints
spelling	iium-451672015-10-15T04:07:46Z http://irep.iium.edu.my/45167/ Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs) Mohammed Shawtari, Fekri Ali Mohamad, Muslim Har Sani Ab. Rashid, Hafiz Majdi Salem, Milad Abdelnabi HF5601 Accounting. Bookkeeping HG4001 Financial management. Business finance. Corporation finance. The aim of this paper is to examine the effectiveness of board monitoring mechanisms in Government Linked Companies (GLCs) in Malaysia. Mainly it focuses on how the introduction of the transformation policy, which emphasizes strengthening the board effectiveness, would lead to an improvement in the performance of GLCs. Our study goes further to explain the impact of earnings management on performance as it is opined that the performance of the firm could be affected by the earnings management (EM) practices, and, hence, looking at the performance after stripping away the managed portion of performance could provide more accurate results concerning the impact of corporate governance on performance. Using regression analysis, the findings of the study showed that the adjusted R2 increased from 14.8% to 26.8% (between the pre-transformation and post-transformation models). In addition, more corporate governance variables were found to be significant in the post-transformation model (i.e. board independence and board meetings). More importantly, the significance of the variables are as predicted in the hypotheses, thus lending support for the argument of the agency theory. This study has recognized a few limitations. First, the main limitation of the study is that the data were collected through publicly available data which include annual reports and other databases such as Bloomberg. Other data such as qualitative information could be helpful to gain more insight concerning the issue of the effectiveness of the transformation policy. Second, although we are using all available data for the Malaysian GLCs, the sample size of 35 companies could still be considered as a small sample size for generalization purpose. The government, in its role of regulating the corporate governance for GLCs, could gain an insight from the results of the study, thereby providing empirical support for the development of new regulations and recommendations, and takes the necessary corrective decisions regarding the effectiveness of the transformation policy. The paper provides further evidence concerning the relationship between performance and corporate governance mechanisms. Specifically, it looks into such a relationship within the Malaysian GLCs after the introduction of the transformation programme. The results of the study are more accurate for interpretation as the measure of performance has deducted the portion of managed earnings. VIRTUS INTERPRESS 2015 Article PeerReviewed application/pdf en http://irep.iium.edu.my/45167/1/45167.pdf Mohammed Shawtari, Fekri Ali and Mohamad, Muslim Har Sani and Ab. Rashid, Hafiz Majdi and Salem, Milad Abdelnabi (2015) Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs). Corporate Board: Role, Duties & Composition, 11 (2). pp. 98-111. ISSN 2312-2722 (O), 1810-8601 (P) http://www.virtusinterpress.org/Published-Issues-of-the-Journal,77.html
repository_type	Digital Repository
institution_category	Local University
institution	International Islamic University Malaysia
building	IIUM Repository
collection	Online Access
language	English
topic	HF5601 Accounting. Bookkeeping HG4001 Financial management. Business finance. Corporation finance.
spellingShingle	HF5601 Accounting. Bookkeeping HG4001 Financial management. Business finance. Corporation finance. Mohammed Shawtari, Fekri Ali Mohamad, Muslim Har Sani Ab. Rashid, Hafiz Majdi Salem, Milad Abdelnabi Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs)
description	The aim of this paper is to examine the effectiveness of board monitoring mechanisms in Government Linked Companies (GLCs) in Malaysia. Mainly it focuses on how the introduction of the transformation policy, which emphasizes strengthening the board effectiveness, would lead to an improvement in the performance of GLCs. Our study goes further to explain the impact of earnings management on performance as it is opined that the performance of the firm could be affected by the earnings management (EM) practices, and, hence, looking at the performance after stripping away the managed portion of performance could provide more accurate results concerning the impact of corporate governance on performance. Using regression analysis, the findings of the study showed that the adjusted R2 increased from 14.8% to 26.8% (between the pre-transformation and post-transformation models). In addition, more corporate governance variables were found to be significant in the post-transformation model (i.e. board independence and board meetings). More importantly, the significance of the variables are as predicted in the hypotheses, thus lending support for the argument of the agency theory. This study has recognized a few limitations. First, the main limitation of the study is that the data were collected through publicly available data which include annual reports and other databases such as Bloomberg. Other data such as qualitative information could be helpful to gain more insight concerning the issue of the effectiveness of the transformation policy. Second, although we are using all available data for the Malaysian GLCs, the sample size of 35 companies could still be considered as a small sample size for generalization purpose. The government, in its role of regulating the corporate governance for GLCs, could gain an insight from the results of the study, thereby providing empirical support for the development of new regulations and recommendations, and takes the necessary corrective decisions regarding the effectiveness of the transformation policy. The paper provides further evidence concerning the relationship between performance and corporate governance mechanisms. Specifically, it looks into such a relationship within the Malaysian GLCs after the introduction of the transformation programme. The results of the study are more accurate for interpretation as the measure of performance has deducted the portion of managed earnings.
format	Article
author	Mohammed Shawtari, Fekri Ali Mohamad, Muslim Har Sani Ab. Rashid, Hafiz Majdi Salem, Milad Abdelnabi
author_facet	Mohammed Shawtari, Fekri Ali Mohamad, Muslim Har Sani Ab. Rashid, Hafiz Majdi Salem, Milad Abdelnabi
author_sort	Mohammed Shawtari, Fekri Ali
title	Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs)
title_short	Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs)
title_full	Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs)
title_fullStr	Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs)
title_full_unstemmed	Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs)
title_sort	corporate governance mechanisms and unmanaged earnings: evidence from government linked companies (glcs)
publisher	VIRTUS INTERPRESS
publishDate	2015
url	http://irep.iium.edu.my/45167/ http://irep.iium.edu.my/45167/ http://irep.iium.edu.my/45167/1/45167.pdf
first_indexed	2023-09-18T21:04:17Z
last_indexed	2023-09-18T21:04:17Z
_version_	1777410829546684416

Corporate governance mechanisms and unmanaged earnings: evidence from Government Linked Companies (GLCs)

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