Corporate Governance and Firm Performance: A Comparative Analysis of Two Sectors of Malaysian Listed Companies

2nd INTERNATIONAL CONFERENCE ON MANAGEMENT 1143 (2nd ICM 2012) PROCEEDING
11th - 12th JUNE 2012. HOLIDAY VILLA BEACH RESORT & SPA, LANGKAWI KEDAH, MALAYSIA ISBN: 978-967-5705-07-6. WEBSITE: w w w . i n t e r n a t i o n a l c o n f e r e n c e . c o m . m y
CORPORATE GOVERNANCE AND FIRM PERFORMANCE: A COMPARATIVE ANALYSIS OF TWO SECTORS OF MALAYSIAN LISTED COMPANIES
Idris Adamu Alhaji*
Department of Technology Management and Business, University Tun Hussein Onn Malasia 86400 Parit Raja, Batu Pahat, Johor, Malaysia alhajiidris05@yahoo.com
Dr. Wan Fauziah bt Wan Yusoff

Faculty of Technology Management and Business, Universiti Tun Hussein Onn Malaysia fauziahy@uthm.edu.my
Mohammed Alkali
Faculty of Management and Business Administration, UNIMAS lamidoalk@yahoo.com ABSTRACT A number of studies, particularly in developed countries had been carried out to explore the influence of corporate governance on firm performance. Most of the studies discussed about different board characteristics in relation to various firm performance measurements. Although board characteristics enabling organisations to improve their corporate governance and firm performance, a large number of studies also found inconsistent findings of the relationship between board characteristics and firm performance. This paper is therefore to analyses and compare the influence of board characteristics and firm performance within the context of two sectors in Malaysia. To do three board characteristics were measured include; number of independent director, board size and leadership structure. The firm performance considered in this study are return of equity (ROE) and earning per share (EPS). A sample of eighty six (86) companies from Trading services and Consumer products listed on Bursa Malaysia for the fiscal year 2011. The data were collected from annual reports of these companies obtained from Bursa Malaysia and then were analysed using Pearson correlation and linear regression. The study revealed there is no relationship found between the three board characteristics (independent non-executive, board size and leadership structure) with the firm performance (ROE and EPS). This study confirm with previous studies in regard to the inconsistent relationship between board characteristics and firm performance.
Keywords:
Corporate Governance, Firm Performance, board characteristics, ROE and EPS
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1. INTRODUCTION Corporate governance has recently received much attention due to Adelphia, Enron, WorldCom, and other high profile scandals, serving as the impetus to such recent U.S. regulations as the Sarbanes-Oxley Act of 2002, considered to be the most sweeping corporate governance regulation in the past 70 years (Byrnes et al., 2003). If better corporate governance is related to better firm performance, bettergoverned firms should perform better than worse-governed firms. Managers have incentives to expropriate a firms assets by undertaking projects that benefit themselves personally but that impact shareholder wealth adversely (Jensen and Meckling, 1976; Fama and Jensen, 1983; Shleifer and Vishny, 1997). Effective corporate governance reduces control rights stockholders and creditors confer on managers, increasing the probability that managers invest in positive net present value projects, (Shleifer and Vishny, 1997), suggesting that better-governed firms have better operating performance, our first proxy for firm performance and also Shleifer and Vishny (1997) define corporate governance (CG) as a way in which suppliers of finance to corporations assure themselves of getting a return on their investment. Irrespective of the particular definition, the importance of corporate governance arises in a firm because of the separation between those who control and those who own the residual claims (Epps & Cereola 2008). Furthermore, agency theory assumes an opportunistic behavior that is individuals want to maximize their own expected interests and are resourceful in doing so (McCullers & Schroeder 1982). Therefore, there will be a conflict of interest between managers and stakeholders. Macus (2008) argues that the basic issue from an agency perspective is how to avoid such opportunistic behavior. Since, stakeholders hire managers to apply their investment in firm's activity, an information asymmetry occurs because management have the competitive advantage of information within the company over that of the owners (Zubaidah 2009). It can provide management with the opportunity to expropriate firm wealth in their benefit. Hence, agency theory suggests corporate governance as a mechanism to reduce these conflicts by monitoring managers' performance and aligning management's goals with those of the stakeholders (Brickley & James 1987). The CG model in Malaysia has closely followed the Anglo-American approach, which is generally referred to as the ``shareholder model'', where the governance concept is based on the agency relationship (Abdullah 2004). This corporate governance model is a one-tier system where the board of directors is the highest governing body in the company because the shareholders do not have a complete control on management's decisions. In a balance sheet model of the firm, Gillan (2006) argues that the board of directors is the apex of internal governance system and is responsible to monitor and compensate management. Managers are more likely to act against shareholders' interests when they do not earn their desirable interests (Jensen & Meckling 1976). This opportunistic behavior of management can lead to reduce the value of the firm. Therefore, the board's success in discharging its fiduciary duties and monitoring roles would be predicted to increase the value of the firm and enhance the shareholders' wealth (Abdullah 2004). Indeed, in Malaysia, the High Level Finance Committee Report on Corporate Governance published a document called Code of Corporate Governance in March 2000 to set the corporate governance standard. Generally it is a voluntary Code, however beginning from June 2001, listed companies in Bursa Malaysia must include in their annual reports a Corporate Governance Statement to show (i) how they

have applied the Principles of the Code and (ii) extent of compliance with Best Practices of the Code, stating reasons for non-compliance if any. The aim of this research is to examine the relationship between corporate governance and firm performance. Therefore, five main characteristics of corporate governance are selected, they include: independent directors, board size, audit committee, leadership structure and board meeting, this research is interested in measuring the performance of Malaysian companies on how corporate governance influence firm performance by the used of financial ratio such as ROE and EPS as a tools of measuring performance of a companies. If good corporate governance is in place, it means there is a good board oversight on the management of the company. This would in turn ensure the company improves its performance. However, would that also mean that weak corporate governance lead to weak performance? Since the board of directors are the most important device to monitor the management, independency of board members become a significant issue (Abdullah 2004). Board independency means the proportion of independent non-executive directors relative to the total number of directors. It is argued that boards with the more nonexecutive directors will control the opportunistic behavior of managers and protect the shareholders interests better than boards with dependent members (Zubaidah 2009). In addition, Dahya and McConnell (2003) and Dehaene et al. (2001) found a significant positive relationship between the ratio of independent directors and return on equity among Belgian companies. Another crucial monitoring mechanism based on agency perspective is the separation of the roles of CEO from chairman (William et al. 2003). When there is no separation, the CEO also serves as chairman. This situation, known as CEO duality, is problematic from an agency perspective where the CEO chairs the group of people in charge of monitoring and evaluating the CEOs performance. In companies with CEO duality approach, the crucial question is ``who monitors management? or ``who will watch the watchers?" (Zubaidah 2009). This situation provides CEOs with the opportunity to have a dominant influence on the board's decisions. Therefore, CEO duality will weaken board's independency and make them unable to monitor management effectively. In addition, the basic problem discussed in agency theory is the separation of ownership from control and different mechanisms are suggested to mitigate the costs associated with the conflict of interests among this separation (Alberto et al. 2005). When the board of directors owns part of the firm's share, their interests align the interests of other shareholders and they are less likely to engage in opportunistic behavior (Zubaidah 2009). Therefore, it can be concluded that directors' ownership has a negative relationship with agency conflicts and, as a consequence, a positive relationship with firm performance. Board size refers to the number of directors on the board. Cheng (2008) in his article suggest that larger boards are less efficient and slower in decision-making because it is more difficult for the firm to arrange board meetings and for the board to reach a consensus. He also argues when the board size is bigger it will be easier for CEO to have a dominant on the board and increase the CEO power in decision-making (Jensen 1993). In addition, some studies document a negative association between board size and firm performance (Yermack 1996; Eisenberg et al. 1998). Following the Asian Financial Crisis, the Malaysian government has taken vast effort to improve the corporate governance in Malaysia. The present study will offer some evidence to help evaluate the effectiveness of corporate governance reforms in Malaysia by comparing the financial ratios of two hundred Malaysian companies that are assumed practice good corporate governance.

This research is organized into six sections. The following section offers background information on Malaysian corporate governance practices. Section two offers review of prior studies. The three sections describe the data collection and research methodology. Section four presents the research findings and discussions. The final section provides conclusion of the research, its implication and suggestions for future research.
2. FIRM PERFORMANCE The definition of firm performance could vary from one and another. Nonetheless, some clear definitions of firm performance in the context of human capital enhancement could be put forward. In some cases, financial performance measures such as percentage of sales resulting from new products, profitability, capital employed and return on assets (ROA) (Selvarajan et al., 2007; Hsu et al., 2007). Besides, return on investment (ROI), and earnings per share (EPS) can also be used as measurement of financial performance (Grossman, 2000). Firm performance is considered as, the ability of firm to produce results in relation to the set target, such as return on investment (ROI), customer retention, sales growth and profitability. (Tippins & Sohi, 2003) Therefore, Firm's performance measured against standard or prescribed indicators of effectiveness, efficiency, and environmental responsibility such as, cycle time, productivity, waste reduction, regulatory compliance (Business Dictionary.com).
2.0.1 Measurement of firm performance Performance measurement and incentive compensation are considered two primary and interrelated systems of control within a business organization. The performance measurement system measures performance in areas where the agent has decision rights, the compensation system rewards and punishes the agent's performance in those areas (Bushman et al., Ittner and Larcker, 1995; Hemmer, 1996; Perera et al., Zimmerman, 1997). The performance measurement system provides essential information to improve the understanding of managers decisions on firm value, and thereby serves a key governance role in developing strategies, evaluating the achievement of organizational objectives, and compensating managers. Current studies also suggest that the link between performance measurement and executive reward is a key element of management control systems because it creates incentives for managers to take the long-term perspective, reduces information asymmetry, and aligns managers' decisions with the interests of shareholders (Fornell et al., 1996; Hertenstein and Platt, Ittner and Larcker, 1998). This study is adopting the following ROE and EPS to measure the performance of the (86) companies in Bursa Malaysian.

3. VARIABLES 3.0.1 Dependent Variable (Firm Performance) Empirical examination of impact of corporate governance on firm requires selection of appropriate performance measures for objective analysis. Unbiased performance measurement is necessary for both strategic and diagnostic purposes. Though there has been a debate regarding what constitutes corporate performance (e.g., Cochran & Wood, 1984; Ittner & Larcker, 2003) most studies examining the role of boards have traditionally used a variety of financial measures: Tobins Q or its proxy (Yermack, 1996; Weir et al., 2002; Kiel & Nicholson, 2003), return on investment (Boyd, 1995; Adjaoud, Zeghal & Andaleeb, 2007), return on assets (Zajac & Westphal, 1996; Shrader, Blackburn & Iles, 1997; Kiel & Nicholson, 2003), sales revenue (Bhagat et al., 1999), return on equity (Bhagat et al., 1999; Adjaoud et al., 2007), stock returns (Bhagat et al., 1999), earnings per share (Adjaoud et al., 2007), net profit margin (Bauer, Guenster & Otten, 2004) and economic value added (Adjaoud et al., 2007). For the purpose of the study, I used an accounting based measure, viz., return on equity (ROE) and earning per share (EPS). Return on equity measures a corporation's profitability by revealing how much profit a company generates with the money shareholders have invested. ROE has been used in many studies on firm performance and is considered a robust measure of firm performance (Carter, Simkins, & Simpson, 2003; Erhardt, Werbel, & Shrader, 2003; Keil & Nicholson, 2003). Similarly, earnings per share (EPS) and Market Book Ratio (Tobin q). For example, Zahra and Pearce (1989), Yermack (1996), Dahya and McConnell (2003), Abdullah (2004), Bozec (2005) have covered aspects such as board composition, characteristics, and their impact on firm performance. The literature has identified board size, independent non-executive directors, leadership structure, board meeting and audit committee, as the key factors that influence the effectiveness of good corporate governance and firm performance.
3.0.2 Explanatory Variables The explanatory variables include Independent non-executive directors, leadership structure, and board size.
3.0.2.1 Independent non-executive directors: Bursa Malaysia underscores the importance of having independent directors on boards by its Revamped Listing Requirements by ensuring the board of directors of Malaysian public listed companies has a sufficient independent element to safeguard the interest of investors. The role of independent directors on the board of directors is to effectively monitor and control firm activities in reducing opportunistic managerial behaviors and expropriation of firm resources (Fama and Jensen 1983a,b, Brickley et al. 1994). However, independent directors face difficulties in discharging their duties as they are not directly affiliated with the management (Weisbach 1988). There is evidence to show that independent

directors are valued for their ability to advise, to solidify business and personal relationships, and to send a signal that the company is doing well rather than for their ability to monitor (Mace 1986, Herman 1981). Nevertheless, a study of Singapores directors has indicated that most of the respondents were of the opinion that the optimum level of independent directorship is between 25% and 50% of the total size of the board and the independent directors were more convinced that strong corporate governance enhanced the board effectiveness more than executive directors (Goodwin and Seow 2002). As such, the proportion of independent directors is identified as the other independent variable in this study. Numerous studies has evidenced that the proportion of independent directors is correlated to firm performance (Agrawal and Knoeber 1996 In addition, firms that substantially increase the proportion of independent directors have above-average stock price returns (Dennis and Sarin 1997). Conclusion has also been made that increasing the level of the proportion of independent directors should simultaneously increase firm performance as they are more effective monitors of managers (Adams and Mehran 2003). There were other views which are totally different from the above. The relationship between the proportion of independent director and firm performance was found to be negative (Klein 1998, Agrawal and Knowber 1996, Yermack 1996). It has been further argued that there is no relationship between the proportion of independent directors and superior firm performance (Hermalin and Wesbach 2001). Based upon the literature, the relationship between proportion of independent directors and firm performance will be investigated in the study.
3.0.2.2 Board Size: Board size is an indication of both monitoring role and advisory role (e.g., Hermalin & Weisbach, 1988; Klein, 1998; Adam & Mehran, 2003, Anderson et al., 2004; Coles et al., 2008). The size of the board is also found to increase with firm age and firm size (Coles et al., 2008). To examine its effect, various studies measure board size by the total number of directors on the board of directors of a firm (e.g., Yermach, 1996; Bhagat & Black, 2002; Adam & Mehran, 2003; Bonn, 2004; Coles et al., 2008). I use the number of members in the board as a measure of board size.
3.0.2.3 Leadership structure: CEO Duality refers to p a situation where the same person serves the role of the CEO of the firm as well as the chairman of the board. CEO duality is supported on the ground of unified leadership (Boyd, 1995; Charan, 1998), but it is also found to promote entrenchment and weaken board monitoring effectiveness (Finkelstein & DAveni, 1994; Worrell et al., 1997; Carlsson, 2001). Some studies refer to absence of CEO duality as Independent Chairman (e.g., Coles & Hesterly, 2000). Following other studies (Boyd, 1995; Muth & Donaldson, 1998; Weir et al., 2002; Abdullah, 2004; McIntyre et al., 2007), I examine this variable using a dummy variable, which takes a value of 1 if the CEO and chairman are the same person and 0 otherwise.

4. THEORETICAL FRAMEWORK Based on the literature, three board characteristics have been identified as probably having an influence on firm performance and these characteristics are set as the independent variables in the framework. The dependent variables are the ROE and EPS, which are used to measure the firm performance. The relationship between each of these independent variables and firm performance are hypothesized as follows: General theoretical framework of this study is shown below:
4.0.1 Specific hypothesis: H1: Number of independent directors on the board has positive influence return on equity and earning per share H2: Board size has positive influence in return on equity and earning per share H3: Leadership structure influence has positive return on equity and earning per share
5. SAMPLE SELECTION From the Malaysian listed companies on the main board of Bursa Malaysia, 86 companies were randomly selected. The stratified random sampling technique is also applied in this study, where the availability of the annual reports of the chosen companies on the Bursa Malaysia website also plays a determining role in the inclusion of the company in the final list. In other words, companies that have been chosen by the random sampling function but do not have annual reports readily available on the Bursa Malaysia website were eliminated from the sample list; and left with total of eighty six companies (86) as the sample size. The data required for the purpose of this study is collected from 2011 fiscal year

annual reports of the firms. The data collection technique is mainly manual search on the annual reports of the companies.
6. FINDINGS AND DISCUSSION Based on the analysis of the data, 3.5% of the companies comply with the recommendations of the MCCG (2000) by separating the roles of the chairman and the CEO of the company. The level of duality of 96.5% of the sample data in this study is higher than a previous finding (11.8% ) in the Malaysian setting over a period of five years from 1996 to 2000 by Rahman and Haniffa (2002). The descriptive statistics in table 1 for the independent variables indicate that the average number of directors on the board in the selected companies is about eight persons. It is consistent with the study by Zubaidah (2009) in Bursa Malaysia based on the data from 2003. The average percentage of independent nonexecutive directors (3.53%) shows that the companies comply with the recommendations of the MCCG (2000) that one third of the board members should be independent non-executive directors. Table 1: Descriptive Statistics
Independed Non-Executive N Valid Missing Mean Median Std. Deviation 86 0 3.53 3.00 1.037 Board size 86 0 7.62 7.00 2.170 leadership 86 0 1.97 2.00 .185 ROE 86 0 10.984302 8.580000 14.6067247 EPS 86 0 24.567058 13.000000 40.8458121
A Pearson correlation analysis is performed on the variables to check for the degree of multicollinearity among the variables (table 2). Even though there are significant correlations among some of the variables, none of the coefficients exceeds 0.8, which is used as an indicator of serious multicollinearity (Gujarati, 1992). Hence, it may be concluded that multicollinearity is not a serious problem in this case. Table 2: Pearson Correlations
Independed NonExecutive Independed Non-Executive Pearson Correlation Sig. (2-tailed) N Board size Pearson Correlation Sig. (2-tailed) N 86 .652** .000 86 86 1 1 Board size leadership ROE EPS

11th - 12th JUNE 2012. HOLIDAY VILLA BEACH RESORT & SPA, LANGKAWI KEDAH, MALAYSIA ISBN: 978-967-5705-07-6. WEBSITE: w w w . i n t e r n a t i o n a l c o n f e r e n c e . c o m . m y leadership Pearson Correlation Sig. (2-tailed) N ROE Pearson Correlation Sig. (2-tailed) N EPS Pearson Correlation Sig. (2-tailed) N **. Correlation is significant at the 0.01 level (2-tailed). -.147 .176 86 .079 .469 86 .178 .101 86 -.122 .263 86 .028 .799 86 .129 .235 86 86 .040 .714 86 -.129 .237 86 86 .517
**
.000 86 86
Table 3. Regression analysis

Unstandandardi zed Coefficients Unstandandardized Coefficients Model ROE 1. (Constant) -.657 1.578 Beta EPS 46.323 5.634 ROE 19.264 2.049 Std. Error EPS 52.968 5.634 .112 .151 ROE Beta EPS ROE -.034 .770 t EPS .875 1.055 ROE .973 .443 Sig. EPS .384 .294
Independent NonExecutive Board size Leadership
-.262 4.099
.343 -23.094
.976 8.798
2.683 24.191
-.039 .052
.018 -.104
-.268 .466
.128 -.955
.789 .643
.899 .343
The significance level is at 0.10 (10%)respectively, based on one-tailed tests. EPS is earnings per share as measured by income divided by total shares; ROE is return on equity as measured by profit before interest and tax divide total asset multiplied by 100.
The coefficients for independent non-executive directors, board size and leadership are insignificant even at the 10% level. This reveals that there is insufficient evidence to infer that there is a linear relationship between corporate governance and firm performance variables. Hence, hypothesis H1, H2 and H3 are rejected. Nevertheless, the coefficient is negative which is inconsistent with the expectation in the theoretical model. The results of regression analysis for ROE and EPS in table 3 shows that there is no positive influence between the independent and dependent variables in this study.

Table 4: Trading Service and Consumer Products Level_Roe Level Excellent GOOD MEDIUM POOR TOTAL Frequency Trading Consumer 1 2 38 29 8 8 46 40 Percentage Trading Consumer 2.5 5.0 82.6 72.5 17.4 20.0 100 100.0 Valid percentage Trading Consumer 2.5 7.5 82.6 80.0 17.4 20.0 100 100.0
Table 4 shows the frequencies and percentages of level of ROE of trading service and consumer products from excellent, good, medium and poor, which indicated the level of how the companies return their equities. FIGURE 1: Level of ROE of Trading and Consumer products companies
Fig 1: The fig. 1 above is showing the frequencies and percentages of the return on equity of the trading service and consumer products, the level of ROE was divided into four categories which include Excellent, Good, Medium and Poor, and the graph shows that trading and services has the highest ROE of (82.6%) while the consumer products has (72.5%).

Table 5: Trading Service and Consumer Products Level_EPS Level Excellent GOOD MEDIUM POOR TOTAL Frequency Trading Consumer 31 23 14 10 1 2 5 46 40 Percentage Trading Consumer 67.4 57.5 30.4 25.0 2.2 5.0 12.5 100 100 Valid percentage Trading Consumer 67.4 57.5 30.4 25.0 2.2 5.0 12.5 100 100
Table 5 shows the frequencies and percentages of level of EPS of trading service and consumer products from excellent, good, medium and poor, which indicated the level of earning per share to the shareholders of the companies. FIGURE 2: Level of EPS of Trading and Consumer products companies.
Fig 2: The fig. 2 above is showing the frequencies and percentages of the earning per share of the trading service and consumer products, the level of EPS was also divided into four categories which include Excellent, Good, Medium and Poor, and the graph shows that trading and services has the highest ROE of (67.4%) while the consumer products has (57.5%).

6.2 Discussion This paper is to scrutinized corporate governance and firm performance and comparative analysis of two sectors in Malaysian listed companies. I conducted my analysis on a sample size of 86 companies in Malaysian the data were collected from Bursa Malaysia from individual companys annual reports, it happened that all the companies published their earning per share in their annual report but in respect of the return on equity ninety percent (90%) of the companies didnt mention their ROE is their ration analysis I have to calculate the ROE from the accountant ratio analysis I calculated it using the ROE= profit before interest and tax divided total asset multiplied by 100. The aim of this study is to compare the performance of the two sectors in respect of their corporate governance and firm performance, I used board characteristics as my independent variables and firm performance as my dependent variables, the hypothesis were developed and tested each variable to identify the influence of each of the board variables and many various boards. I discussed some of the board characteristics such as Independent Non-executive directors, board size, and leadership structure which are all assume to influence firm performance. On the other hand, I felt that the board characteristic would have positive influence in firm performance (ROE and EPS). The empirical analyses provides that Number of independent directors on the board has negative influence return on equity and earning per share, the coefficient of the independent non-executive directors in all the dependent variables were rejected, because the result shows there is no significance between the variables. This result suggest that agency theorys theoretical predictions of a positive relationship between outside (independent) directors and firm performance are also not applicable in the two sectors in Malaysian as well. This result is similar to that of Yermack (1996) and Klein (1998) who suggests that a high percentage of outside directors have negative effect on firm performance then Hypothesis one is rejected. Board size was found to be negatively related to ROE and EPS which is contradicting the hypothesis which says the number of board size has a positive influence on ROE and EPS, and this study is refute with many other studies that examined the effect of board size on firm performance (e.g.,Klein, 1998; Adam & Mehran, 2003; Anderson et al., 2004; Coles et al., 2008). Board size is considered to increase the independence of the board and counteract the managerial entrenchment (Singh & Harianto, 1989; Zahra and Pearce, 1989) and also Dalton et al. (1998) who find a positive and significant relationship between board size and financial performance. The study also empirically found that too big board is likely to be less effective in substantive discussion of major issues among directors in their supervision of management. Lipton and Lorsch (1992) argue that large boards are less effective and are easier for the CEO to control. When a board gets too big, it becomes difficult to coordinate and for it to process and tackle strategic problems of the organisation. Yermack (1996) also find negative correlation between board size and profitability. Eisenberg, Sundgren and Wells (1998) and Mak and Kusnadi (2005) also report that small size boards are positively related to high firm performance. Mak and Yuanto (2003) using sample of firms in Malaysia and Singapore, find that firm valuation is highest when board has 5 directors, a number considered relatively small in those markets. In a Nigerian study, Sanda et al (2003) report that firm performance is positively correlated with small, as opposed to large boards. Going by this study the Hypothesis two is also rejected which is similar to the study of Yermack (1996). This study found that leadership structure has a negative influence of ROE and EPS, contrary to the expectation of the research hypothesis which started that leadership structure has positive influence on firm performance (ROE and EPS). Corporate governance in Malaysia is expected to optimize the

interests of a broader group of stakeholders (i.e., suppliers, employees, and the general community) rather than just maximizing the interests of shareholders. Allen (2005), finding similar results in some economically developed countries, supported this interpretation by pointing out that In countries such as Japan, Germany and France, it is this broad view that is often stressed. Rather than shareholders alone, a wider set of stakeholders, including employees and customers as well as shareholders, is considered. In fact, in Germany the legal system is quite explicit that firms do not have a sole duty to pursue the interests of shareholders (p. 165). These results are consistent with the findings of Rechner and Dalton (1991) and Under Secretary Nicholson (2003). Can also show the power that the person who holds the two office to influence the members of the Governing Council in order of importance. Can the Chief Executive, who is highly influential seat in the election of directors / their choice, which affects the supervisory role of the Council. In such circumstances, although many members of the non-executive board, the role of the virtual functions of the Council as a rubber stamp Council under the control of a number of Chief Executive Officer (Rechner, 1989). On a small panel, it can be CEO of two to be very useful because they provide strong leadership and direction. However, as expected, the largest institution that reduces the impact of duplication of the Executive Director. This is consistent with existing literature, which found that dual CEO negatively associated with a strong performance on large panels (Strickland et al, 1996; Under Secretary Nicholson, 2003).
7. CONCLUSION According to Leblanc and Gillies (2003) study of corporate governance through interviewing Respondents, including regulators, shareholders (both institutional and retail) and corporate directors, the vast majority overwhelmingly thought that there would be a relationship between corporate governance and the financial success of the corporation. Therefore, the missing link between corporate governance and company performance may be the boards processes (referring to the boards decisionmaking procedures) and effectiveness, rather than just board structure (Lablanc & Gillies, 2003). Good corporate governance is vital to economic stability and growth in developed and developing economies: The essential point is that good corporate governance is an aid to effectiveness. It is not there to shackle enterprise but to harness it in the achievement of its goals (Adrian Cadbury). Malaysia seems dedicated towards promoting the development of sound corporate governance systems and practices. Indeed, considerable progress already has been achieved. Yet, as seen, even in the most advanced economies, there have been signs that some developments in markets have outpaced the development of corporate governance systems and practices. In an ever-changing world, this is nothing new, financial policy makers, supervisors, and regulators are always trying to catch up with the evolution of markets. Malaysias corporate governance systems and practices should be constantly developed to keep up with the evolution of markets. Lastly, based on the analysis of this study and the level of ROE and EPS of both the trading services and consumer products, I compared the performance of the two sectors. I found out that, trading services

has the highest ROE and EPS, thats shows many shareholders would invest more in trading and services than in consumer products. Because the investors are always concern with what they would get at the end of their investment, what would be their earning, it was believed that the companies that give highest earning per share is performing excellent in term of its business.
ACKNOWLEDGEMENT A work of this nature almost always has a single patron, but this very work does boast of so many patrons. These patrons are all those authors who we made used of their works as references. I salute their efforts in academics developments and I also acknowledge the University Tunn Hussein Onn Malaysia for their financial support and also thank them most for making this conference work possible.
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Corporate Governance and Firm Performance: A Comparative Analysis of Two Sectors of Malaysian Listed Companies

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2nd INTERNATIONAL CONFERENCE ON MANAGEMENT 1143 (2nd ICM 2012) PROCEEDING

Dr. Wan Fauziah bt Wan Yusoff

Corporate Governance, Firm Performance, board characteristics, ROE and EPS

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Table 3. Regression analysis

Independent NonExecutive Board size Leadership

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