Board Governance Characteristics, Capital Structure Decisions and Company Performance in Malaysia

• Main Author: Aza Azlina, Md Kassim
• Format: Thesis
• Language: English; English
• Published: 2013
• Subjects: HD58.9 Organizational Effectiveness.
• Online Access: https://etd.uum.edu.my/3801/1/s92296.pdf; https://etd.uum.edu.my/3801/8/s92296.pdf; https://etd.uum.edu.my/3801/
• Institution: Universiti Utara Malaysia

The separation of ownership and control in public listed companies limits the involvement of shareholders in management decision making, including capital structure decisions. In the capital structure decision-making process, managers always get to push through their preferences, which focus on debt instead of equity. Shareholders rely on the board of directors to evaluate and challenge management decisions. This study examines the effect of board governance on company leverage that focus on how directors discharge their duties, referred to as the board process. Four variables of board process are analysed: performance of independent directors, board’s risk oversight, Chief Executive Officer (CEO) performance evaluation, and directors’ accessibility to information. Besides, the interaction between the manager’s ownership and the board process on company leverage is examined. This study also investigates the mediation effect of capital structure decisions on the relationship between board process and company performance. The study uses two types of data which are questionnaire survey of Malaysian directors and the companies’ annual reports. Based on returned questionnaires representing 175 companies, results of the regression analysis indicate that directors with lower risk appetite and a more effective board are more likely to make less risky capital structure decisions. Moreover, owner-managers with large ownership influence the board’s capital structure decisions. The results also show that effective independent directors and boards who monitor company risks vigorously are more likely to monitor management from adopting excessive leverage, which results in positive company performance. The findings provide several implications for policymakers in terms of assessing existing guidelines, particularly related to board effectiveness.