Board structure and ownership in Malaysia: the case of distressed listed companies

Abstract

Purpose

This study seeks to examine the influence of board independence, CEO duality and ownership structure on the firm financial distressed status using a sample of distressed companies and a matched‐pair sample of non‐distressed companies listed on the Bursa Malaysia.

Design/methodology/approach

This study utilized publicly available data from annual reports of a sample of 86 non‐finance distressed firms listed on the Bursa Malaysia and a sample of matched 86 non‐distressed firms for a period covering the 1999‐2001 financial years.

Findings

Board independence and CEO duality are not associated with financial distressed status. Management and non‐executive directors' interests are associated negatively with financial distress. A negative association is also documented for outside blockholders. The evidence also supports the contention that ownership by non‐executive directors and outside blockholders effectively increases their incentives to monitor management in ensuring their wealth in the firms is intact.

Research limitations/implications

One limitation of this research is that it relies on publicly available data and agency theory. Future research could apply other theories, such as resource dependency and stewardship. Use of process‐oriented data could also improve the findings.

Practical implications

Independent directors need to undergo training to help them improve and be aware of their responsibilities.

Originality/value

This paper offers evidence on the extent to which distress is associated with corporate governance from a developing country. The paper should be of interest to the regulatory bodies and practitioners.

Citation

Nahar Abdullah, S. (2006), "Board structure and ownership in Malaysia: the case of distressed listed companies", Corporate Governance, Vol. 6 No. 5, pp. 582-594. https://doi.org/10.1108/14720700610706072