Mazlina Mat Zain

Institutional investors, political connection and audit quality in Malaysia

Purpose - The purpose of this paper is to extend the audit pricing literature by examining whether institutional investors and political connection are associated with higher audit fees. Design/methodology/approach - Both descriptive and multivariate analyses are employed to address the research objectives. In addition, the authors use panel data to control for both heterocedasticity and contemporaneous correlations in each cross-section. Findings - Based on a panel analysis of 390 Malaysian firms from 1999 to 2003, a positive relationship between institutional ownership and audit fees is found, although the economic impact is minimal. Further, the authors find that audit fees are higher for politically connected firms. Research limitations/implications - A thorough examination on the role of political connection is much warranted to provide a better understanding on such connection influences the audit market. Originality/value - This paper provides an alternative view on the role of political connection, and on how they influence the audit market.

Political connections, corporate governance and audit fees in Malaysia

Purpose - The purpose of this paper is to examine the relationship between political connection, corporate governance and audit fees in Malaysia. Specifically, it is argued that politically connected firms are perceived to be riskier and thus require auditors to undertake greater audit efforts which in turn lead to higher audit fee. Furthermore, it is also hypothesised that the demand for better corporate governance practices requires more audit effort exert from the auditors, and the demand for higher quality work is expected to be stronger for politically connected firms as these firms are being perceived to have higher risks. This is turn results in higher fees paid to the external auditor. Design/methodology/approach - This paper employs panel regression analysis. The panel data set consists of 382 non-financial firms (1,022 observations) for three years from year 2001 to 2003. Findings - Based on 1,022 firm-year observations for the period of 2001 to 2003, the results reveal that politically connected firms pay higher audit fees, while firms with better governance demand a higher audit quality, leading to higher audit fees. However, there is no evidence to support that corporate governance demands for a higher quality audit especially for politically connected firms. Originality/value - This paper contributes to the corporate governance-audit fees literature by examining a large number of corporate governance variables based on the Malaysian Code on Corporate Governance. In particular, instead of using several individual governance variables such as audit committee, board structure or composition, this study condensed the large number of corporate governance variables into a single index. Furthermore, this study was conducted in Malaysia, which is a unique environment that offers clear identifiable segments based along ethnic line, whereby, politically favoured firms are generally given special privileges by the government.

Political connections, institutional investors and dividend payouts in Malaysia

Purpose The purpose of this study is to examine the agency problem of expropriation using dividends in politically connected firms and the relevance of institutional investors in limiting this problem. The growing presence of this group of shareholders offers a unique opportunity to test their importance in the context of dividends payments and expropriation. Design/methodology/approach This study uses the Tobit regression to test the association between political connection, institutional investors and dividend payouts. The results are also robust to the three-stage-least squares regressions method. Findings The study is based on a random sample of 2,458 Malaysian firms-year observations for the period of 2004-2009. The results reveal that politically connected firms have an inclination to pay lower dividends, while institutional ownership is associated with higher dividend payouts. Furthermore, the findings reveal that higher levels of institutional ownership moderates the negative relationship between politically connected firms and dividends. Research implications The findings have an important implication to regulators as it suggests that the institutional investors can influence the dividend payouts in politically connected firms through active monitoring, thus alleviating agency problems. This also provides a positive feedback on the regulators’ governance initiatives that quest to strengthen the roles of institutional investors. Originality/value This study is the first to examine the effectiveness of the monitoring role of institutional investors in the context of expropriation by politically connected firms from the perspective of dividend payouts.

Corporate governance and dividends payout: are they substitutes or complementary?

Purpose – This paper aims to furnish incremental insights on dividends and corporate governance (CG) by addressing the relationship between board meeting frequency and board independence with dividend payout. In particular, this study aims to investigate whether CG attributes are substitutes to control agency problem within the Malaysian context. Design/methodology/approach – This paper examines panel data on a sample of 114 Malaysian firms (798 observations) for seven years from 2002 to 2008. Findings – Based on 798 firm-year observations for the period from 2002 to 2008, the results show significant negative relationship between CG (board independence, board meeting frequency) and dividend payout. This suggests that CG and dividend payout are substitutes in reducing agency costs. Our study provides empirical evidence consistent with the “substitution argument”, indicating that firms with weak CG need to establish reputation by paying more dividends. Specifically, the findings indicate that firms with a ...

Political connections, fees paid to auditors and auditor independence in Malaysia: evidence from going concern audit opinions

This study examines whether auditor independence will be affected by the magnitude of audit and non-audit services fees provided to audit clients and political connections. We predict that auditor independence will be undermined when audit firms provide non-audit services to the audit clients as the provision of the non-audit services to audit clients increases the economic bond between the audit firm and the client. Furthermore, given the unique institutional background in Malaysia, we also test the relationship between auditor independence and political connections. We use the propensity to issue a going concern opinion as a proxy for auditor independence while political connections are represented by two measures namely the proportion of Bumiputras directors on the board and politically connected firms. Contrary to our prediction, we do not observe any association between the propensity to issue going concern opinions and non-audit fees, total fees and the ratio of non-audit fees to total fees. Interestingly, we find evidence to suggest that audit firms are less likely to issue going concern opinions when audit clients have more Bumiputras directors sitting on board. This result is view to be important as it suggests that political connections could undermine auditor independence in fact and appearance.