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The Impact of Corporate Governance on the Performance of Stock Broking Companies in Malaysia

Ashley Sani ,Abdul Rahman bin S Senathirajah
Keywords: Board composition (BC), Ownership concentration (OC), CEO duality (CD), Board size (BS), Return on Assets (ROA) / firm performance ,

Abstract

This study is conducted in order to examine the practice of good corporate governance by analyzing the board composition, ownership concentration, CEO duality and the board size concentrating in stock broking companies. Developed nations has been attracting investors through fairness and transparency in business through good corporate governance in the capital market industry. Thus, improving corporate governance is highly critical since globalization leads to increasing competition for capital, and investors consider corporate governance when making investment decisions. While the weak corporate governance has been recognized as one of the major sources of East Asia’s vulnerabilities to the financial crisis, Malaysian Government realized the weaknesses of the local regulatory environment and that stronger regulations and adequate governance are required in order to protect the local capital market and to ensure market integrity is maintained in order to attract foreign and local investments. Some stock broking companies may prioritize revenue rather than adherence to good compliance and corporate governance practices. It is believed that a positive impact can contribute to the overall performance of the company as it can shield and protect itself and investors from unforeseen negative market conditions and support the longevity of the company’s business. Thus, it is necessary to examine how the corporate governance correlated to firm performance, and identifying which areas of corporate governance is crucial. This study is examining the corporate governance variables using secondary data gathered from publicly published Annual Report. The data analysis consists of descriptive and inferential statistics, correlation and regression and was performed using SPSS. The result shows that variables OC, CD, BS are correlated with ROA, while BC was not correlated with ROA. Multiple regression analysis concluded that only CD is statistically significant with firm performance.