Firm performance and family related directors: Empirical evidence from an emerging market
Board composition is central to the worldwide corporate governance reforms that have taken place in recent years. The strong emphasis on director independence and board leadership is now part of all corporate governance regimes, including the regimes which has been introduced in Malaysia. It is t...
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| Main Authors: | , , , |
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| Format: | Article |
| Published: |
University of Economics and Human Sciences in Warsaw
2019
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| Subjects: | |
| Online Access: | http://eprints.sunway.edu.my/1415/ http://ce.vizja.pl/en/issues |
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| Institution: | Sunway University |
| Summary: | Board composition is central to the worldwide corporate governance reforms that have taken place
in recent years. The strong emphasis on director independence and board leadership is now part of
all corporate governance regimes, including the regimes which has been introduced in Malaysia.
It is the effectiveness of such provisions in the Malaysian business environment that provides the
motivation for this paper. The literature shows mixed findings on the issues of board independence
and board leadership. Our paper studies the role of directors with family connections and its impact
on financial outcomes. We find that firms with a high presence of family related directors exhibit superior accounting profitability. However, such dominance is negatively viewed by the market (firm
performance based on market measures), indicating that markets tend to perceive that domination
of family members on the board could potentially lead to expropriation of wealth at the expense of
other shareholders. Our results are supported by additional robustness tests. The findings provide
interesting insights into the governance mechanisms of firms in an emerging market and its consequences for investor perceptions. Further implications are also discussed. |
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