Determinants of firm level governance: Malaysian evidence

Abstract

PurposeThe purpose of this paper is to provide an extension of the Corporate Governance Reporting Initiative (CGI) 2004, which reports on Malaysia's first corporate governance ratings. Characteristics of firms with high and low scores in the corporate governance ratings are analysed by comparing companies based on their corporate governance ranking as reported in the CGI.Design/methodology/approachFirms are classified into those at the top 50 percent and the bottom 50 percent of the corporate governance ratings list to examine whether there are any differences in the characteristics of firms in both classified samples. The characteristics of firms that are being examined are firms' profitability, leverage, growth, market valuation, size, age, ownership structure and countries of operation based on the Logit analysis.FindingsThe result shows that firm size has a strong influence with corporate governance ratings, but not so for other variables tested.Research limitations/implicationsThis study analyses only eight corporate characteristics. There are other measures that can represent firms' size such as market capitalization.Practical implicationsIt is hoped that the traits found from the analysis will be able to provide additional information concerning corporate governance to interested parties. The characteristics revealed may probably be found to be essential elements in the development of effective and efficient corporate governance structure. The study could also help corporations in their short‐ and long‐term strategies.Originality/valueThis study bridges the gap of previous studies by using a complete set of governance standards on the analysis and directly identifies firms with certain scores of corporate governance and addresses issues related to these exceptional companies.