The Impact of the Malaysian Code on Corporate Governance: Compliance, Institutional Investors and Stock Performance

Journal of Contemporary Accounting & Economics, Vol. 3, No. 2, 2007

36 Pages Posted: 5 Dec 2007 Last revised: 26 Oct 2011

See all articles by Effiezal Aswadi Abdul Wahab

Effiezal Aswadi Abdul Wahab

Curtin University - School of Accounting

Janice C. Y. How

Queensland University of Technology; Financial Research Network (FIRN)

Peter Verhoeven

Queensland University of Technology - QUT Business School; Financial Research Network (FIRN)

Abstract

In 2001, the Malaysian Code on Corporate Governance (MCCG) became an integral part of Bursa Malaysia Listing Rules, which requires all listed firms to disclose the extent of compliance with MCCG. Our panel analysis of 440 firms from 1999 to 2002 finds that the corporate governance reform in Malaysia has been successful, with a significant improvement in governance practices. The relationship between ownership by Employees Provident Fund (EPF) and corporate governance has strengthened in periods subsequent to the reform, in line with the lead role taken by EPF in establishing the Minority Shareholders Watchdog Group. The implementation of MCCG has a substantial effect on shareholders' wealth, increasing stock prices by an average of about 4.8%. Although there is no evidence that politically connected firms perform better, political connection has a significantly negative effect on corporate governance, which is mitigated by institutional ownership.

Keywords: Corporate Governance, Institutional Investors, Stock Performance, Political Connection

JEL Classification: G21, G22, G23, G32, G34

Suggested Citation

Abdul Wahab, Effiezal Aswadi and How, Janice C. Y. and Verhoeven, Peter, The Impact of the Malaysian Code on Corporate Governance: Compliance, Institutional Investors and Stock Performance. Journal of Contemporary Accounting & Economics, Vol. 3, No. 2, 2007. Available at SSRN: https://ssrn.com/abstract=1058421

Effiezal Aswadi Abdul Wahab (Contact Author)

Curtin University - School of Accounting ( email )

Australia

Janice C. Y. How

Queensland University of Technology ( email )

2 George Street
Brisbane, Queensland 4000
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Peter Verhoeven

Queensland University of Technology - QUT Business School ( email )

GPO Box 2434
Brisbane, Queensland 4001
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

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