Corporate Governance In Malaysia

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The corporate governance in Malaysia comprises two mechanisms which is internal and external corporate governance. Internal corporate governance often sees the shareholders’ interest, operates on the board of directors to monitor top management. The external corporate governance mean by monitors and controls managers’ behaviors. The corporate control and regulatory system involved suppliers, debtors (stakeholders), accountants, lawyers, providers of credit ratings and investment bank (professional institutions). The combination of these two mechanisms affects the corporate governance of a firm. Besides, the main sources of the Corporate Governance reforms agenda in Malaysia are from the Malaysian Code on Corporate Governance by Finance Committee…show more content…
There are several type of ownership and the ownership concentration. The type of ownership include individual, state, institution, foreign and managerial ownership while the ownership concentration is the key determinants of corporate governance. Large shareholders can benefits the minority shareholders with their power and incentive to prevent expropriation but the controlling shareholders also can pursue the objectives that inconsistent with the minority shareholders. Mitton (2002) reported that a higher ownership concentration is associated with a higher stock price return of an average of 2.6% for every increase of 10% in the ownership of the largest shareholders. Managerial ownership allowed the increase of incentive for board manager to monitor managers. The board managers have personal wealth incentive to monitor managers with the proportion of ownership. According to the studies of Houston and James (2002) and Booth, Cornett and Tehranian (2002), Adam and Mehran (2003) between financial and non-financial firms, CEO ownership in bank holdings companies was lower than the manufacturing…show more content…
Board of directors’ role is to ensure that the firm activities is align with its objectives. Besides, defend the interest of the shareholders. The board has to taking responsibility for managing and supervising to make sure that the top management are acting in a way to maximize the value of the shareholders. The board also responsible for making important decisions and employ management team, supervise the firms so that they would not against the law as well. There are internal and external directors in a board. Fama and Jensen (1983) detect that internal directors, by virtue of their positions, possess much more information, are likely to collude with managers and make decisions against shareholders. In contrast, the external director are in neutral position, perform as a supervisor in order to eliminating principal-agency problem. A large board cause that the directors have different views and is difficult to reach a consensus. As a consequences, the efficiency will decrease and the situation will become worsen if the directors

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