Abstract
Recently, there has been an increasing research regarding government involvement in corporate control. Most of them focus on the ownership structure and firm performance but very little concentrate on the board diversity and financial performance. Therefore, the main objective of this study is to investigate the association between board diversity and firms’ financial performance of 26 Malaysian government-linked companies (GLCs). Focusing on ethnicity variable to explain the board diversity, this study aims to observe its relationship with financial performance of the firms, as measured by return on equity (ROE) and return on asset (ROA). A final sample of 99 GLCs listed on the Bursa Malaysia across four years from 2007 to 2010 was utilized. The empirical results revealed that ethnic board diversity in GLCs was negatively and significantly related to firms’ financial performance. The findings hence rejected the hypothesis made in this study that ethnic board diversity has a positive impact towards financial performance. As GLCs have unique characteristics compared to other entities, a future look on other aspect of firm performance may help to explain the goodness of ethnic board diversity in the GLCs.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
References
Anderson, R. C., Mansi, S. A., & Reeb, D. M. (2004). Board characteristics, accounting report integrity, and the cost of debt. Journal of Accounting and Economics, 37, 315–342.
Ararat, M., Aksu, M., & Cetin A. T. (2010). Impact of board diversity on boards’ monitoring intensity and firm performance: Evidence from the Istanbul stock exchange. Working paper series. Available at SSRN: http://ssrn.com/abstract=1572283
Arnegger, M., Hofmann, C., Pull, K., & Vetter, K. (2014). Firm size and board diversity. Journal of Management and Governance, 18, 1109–1135.
Bathula, H. (2008). Board characteristics and firm performance: Evidence from New Zealand. PhD Thesis, Auckland University of Technology.
Campbell, K., & Vera, A. M. (2008). Gender diversity in the boardroom and firm financial performance. Journal of Business Ethics, 83, 435–451.
Carter, D. A., D’Souza F., Simkins B. J., & Simpson W. G. (2007). The diversity of corporate board committees and financial performance. Working paper series. Available at SSRN: http://ssrn.com/abstract=1106698
Chien, A. (2008). The effect of board characteristics on foreign ownership: Empirical evidence from Taiwan. International Research Journal of Finance and Economics, 2, 1450–2887.
Dubbin, F., & Jung, J. (2011). Corporate board gender diversity and stock performance: The competence gap or institutional investor bias? North Carolina Law Review, 89, 810–838.
Ehikioya, B. I. (2007). Corporate governance structure and firm performance in developing economies: Evidence from Nigeria. Corporate Governance, 9(3), 231–243.
Ees, H. V., Postma, T. J., & Sterken, E. (2003). Board characteristics and corporate performance in the Netherlands. Eastern Economic Journal, 29(1), 41–58.
Gomez, E. T. (2003). Affirmative action and enterprise development in Malaysia: The new economic policy, business partnerships and inter-ethnic relations (pp. 59–104). XXI: Kajian Malaysia.
Hamid, A. A. (2011). Network governance in government-linked companies (GLCs) and non-government-linked companies (NGLCs) in Malaysia. Journal of Financial Reporting and Accounting, 9(1), 54–73.
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organisation as a reflection of its top managers. Academy of Management Review, 9(2), 193–206.
Julizaerma, M. K., & Sori, Z. M. (2012). Gender diversity in the boardroom and firm performance of Malaysian public listed companies. Procedia-Social and Behavioral Sciences, 65, 1077–1085.
Kennon, J. (2011). The board of directors responsibility, role, and structure. Available at: http://beginnersinvest.about.com/cs/a/aa2203a.htm. Accessed April 7, 2011.
Khazanah Nasional Berhad. (2011). GLCs and GLCs Transformation System. Available at: http://www.khazanah.com.my/faq.htm. Accessed March 7, 2011.
Marimuthu, M. (2008). Ethnic diversity on boards of directors and its implications on firm financial performance. The Journal Of International Social Research, 1(4), 431–445.
Marimuthu, M., & Kolandaisamy, I. (2009). Can demographic diversity in top management team contribute for greater financial performance? An empirical discussion. The Journal of International Social Research, 2(8), 273–286.
Malaysia Co. Government linked companies. Available at: http://www.malaysiaco.com/government-linked-company. Accessed March 7, 2011.
Ntim, C. G. (2015). Board diversity and organizational valuation: unravelling the effects of ethnicity and gender. Journal of Management and Governance, 19, 167–195.
Pallant, J. (2007). SPSS survival manual (3rd ed.). UK, USA: Open University Press Milton Keynes.
Pitts, D., & Jarry E. M. (2005). Ethnic diversity and organizational performance: Assessing diversity effects at the managerial and street levels. Working paper, 1–41.
Pohjanen, B., Bengtsson, D., & Smith, E. (2010). Return on diversity? A study on how diversity in board of directors and top management teams affects firm performance. Bachelor Thesis, Kristianstad University College.
Post, C., Rahman, N., & Rubow, E. (2011). Green governance, board of director composition and environmental corporate social responsibility. Business and Society, 50(1), 189–223.
Rose, C., Munch-Madsen, P., & Funch, M. (2013). Does board diversity really matter? Gender does not, but citizenship does. International Journal of Business Science and Applied Management, 8(1), 15–27.
Shukeri, S. N., Shin, O. W., & Shaari, M. S. (2012). Does board of director’s characteristics affect firm performance? Evidence from Malaysian public listed companies. International Business Research, 5(9), 120–127.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2016 Springer Science+Business Media Singapore
About this paper
Cite this paper
Adnan, M.F., Sabli, N., Rashid, M.Z.A., Hashim, A., Paino, H., Abdullah, A. (2016). Ethnic Board Diversity and Financial Performance: Evidence from Malaysian GLCs. In: Abdullah, M., Yahya, W., Ramli, N., Mohamed, S., Ahmad, B. (eds) Regional Conference on Science, Technology and Social Sciences (RCSTSS 2014). Springer, Singapore. https://doi.org/10.1007/978-981-10-1458-1_3
Download citation
DOI: https://doi.org/10.1007/978-981-10-1458-1_3
Published:
Publisher Name: Springer, Singapore
Print ISBN: 978-981-10-1456-7
Online ISBN: 978-981-10-1458-1
eBook Packages: Social SciencesSocial Sciences (R0)