Rashidah Abdul Rahman

Board, audit committee, culture and earnings management: Malaysian evidence

Purpose – Aims to investigate the extent of the effectiveness of monitoring functions of board of directors, audit committee and concentrated ownership in reducing earnings management among 97 firms listed on the Main Board of Bursa Malaysia over the period 2002‐2003.Design/methodology/approach – The current study employs the cross‐sectional modified version of Jones, where abnormal working capital accruals are used as proxy for earnings management.Findings – The study reveals that earnings management is positively related to the size of the board of directors. This supports the view that larger boards appear to be ineffective in their oversight duties relative to smaller boards. A possible explanation for the insignificant relationship between other corporate governance mechanisms (independence of board and audit committee) and earnings management is that the board of directors is seen as ineffective in discharging their monitoring duties due to management dominance over board matters. The apparent reaso...

Corporate governance, transparency and performance of Malaysian companies

Purpose - The paper aims to examine the effect of good corporate governance practices on corporate transparency and performance of Malaysian listed companies. Design/methodology/approach - Samples were selected using matched-sampling method and hierarchical regression was employed to test the relationship between among corporate governance mechanism, transparency and performance. Findings - Corporate governance factors have a strong predicting power on company performance, mainly due to debt monitoring and foreign ownership. However, there is a significant negative relation between audit quality and performance. The results find that performance is not associated with the level of disclosure and timely reporting. The results indicate that disclosure and timeliness are not significant contributing factors in the relationship between corporate governance and market performance. Research limitations/implications - The data covers a one-year period of 2002 only. This paper deals only with “one-way” causality running from corporate governance mechanisms to performance, even though, there is evidence of “reverse-way” and “two-way” causality in governance literature. Practical implications - This paper indicates that internal governance mechanisms are not important determinants to corporate performance. However, governance in forms of debt monitoring and foreign ownership have significant influence on corporate performance. Transparency (i.e. disclosure and timeliness of reporting) is not a significant mediating variable between corporate governance and performance. Originality/value - Distinct from previous empirical research as the disclosure level is measured using self-designed corporate governance index. Apart from a study conducted in an Asian setting of Malaysia, the study also tests transparency as a mediating variable between corporate governance and performance

Procurement Issues in Malaysia

Purpose- This study was undertaken with the aim of surveying the perception of the two main stakeholders in procurement system; the contractors and the procurement officers on issues such as accountability, transparency, corruption, integrity and cronyism pertaining to the public procurement system in Malaysia. Design/methodology/approach- Interviews were conducted over a nine-month period in 2007 to gauge the perception of the procurement officers and contractors on procurement issues in Malaysia. The interview data were then transcribed and grouped according to six main themes; transparency, procurement policies and procedures and its implementation, personnel involved in the procurement system, estimation/budget/pricing, professionalism and ethics and timeliness. Findings- One of the common complaints made by the contractors was prevalence of interference from outside parties and cronyism, which affects the awarding of contracts. The procurement officers were blamed for malpractice and non compliance to the policies and procedures of the procurement system. Practical implications- The paper deals with sensitive issues and takes several months to successfully gather respondents who willing to give feedback on their experience with the procurement system. The data are first hand information and are carefully transcribed and categorized into categories to help better understanding of the issues raised by the respondents. Originality/value- The paper deals with sensitive issues and takes several months to successfully gather respondents who willing to give feedback on their experience with the procurement system. The data are first hand information and are carefully transcribed and categorized into categories to help better understanding of the issues raised by the respondents and the private sector.

Empirical evidence on the risk management tools practised in Islamic and conventional banks

Purpose - The paper aims to gain an insight into the risk management tools practised in Islamic and commercial banks in Malaysia, and selected Islamic banks outside Malaysia. The study also examines the level of adequacy of risk management tools and systems of these banks. Design/methodology/approach - The study employs primary data collected using a questionnaire survey. Findings - There are significant differences in the level of extensiveness of the usage of market value at risk (VaR), usage of stress testing results, the usage of credit risk mitigation methods and also the level of extensiveness of the usage of operational risk management tools between Islamic and conventional banks. The findings further show that risk management tools and systems for Islamic banking are inadequate, particularly in the critical areas of “IT professionals with relevant expertise in process integration and risk analytics”, “IT systems to cater for each Islamic instrument” and also the “capacity of human capital in the highly technical areas of risk measurement.” This implies that more innovations and product developments are needed for Islamic banking in managing risks. Originality/value - Since there are relatively few studies conducted in this area, specifically among Islamic banks in Malaysia, this study will broaden the scope of the literature by providing novel empirical evidence.

Institutional investors and earnings management: Malaysian evidence

Purpose – The purpose of this paper is to study the impact of institutional shareholdings on earnings management activities of their portfolio firms.Design/methodology/approach – Using a final sample of 94 top firms on the Bursa Malaysia based on market capitalization as at 31 December 2007, this paper uses the magnitude of discretionary accruals as the proxy for earnings management. The paper measures the aggregate institutional ownership percentage of shareholdings of the five top institutional investors which are further divided into two categories: pressure sensitive consisting of percentage ownership by banks and insurance companies; and pressure insensitive institutional investor consisting of percentage shareholdings by unit trusts, pension funds and state‐owned institutions. Data were collected over a six‐year period from 2002 to 2007. The year it started was also when all the listed companies in Bursa Malaysia started adopting the MCCG requirements as mandatory reporting in annual reports.Finding...

Agency Costs as a Factor in the Suspension of Companies from the Kuala Lumpur Stock Exchange

Abstract In 2001, the Malaysian Securities Commission decided to suspend poorly performing companies from trading on the Kuala Lumpur Stock Exchange (KLSE) and enacted a regulation referred to as Practice Note 4 (PN4). According to this regulation, if a companys shareholder equity is negative, if it receives a going concern qualification, or if a receiver is appointed, then KLSE could classify it as a PN4 company. Using a sample of 21 PN4 and 42 non-PN4 comparable companies over the period 2001–2004, this paper investigates the governance mechanisms, disclosures and financing strategies that identify the PN4 companies and studies the economic consequences of this regulation. The study finds that outsiders in PN4 companies incurred agency costs due to extremely high insider ownership and poor internal governance. The Malaysian institutional environment is used to discuss the reasons why the PN4 regulation fails to lower managerial agency costs.

Institutional Investors and Director Remuneration: Do Political Connections Matter?

This study examines the relationship between institutional investors and director remuneration in Malaysia against an important institutional backdrop of political connection. Our panel analysis of 434 firms from 1999 to 2003 finds a negative relationship between institutional ownership and director remuneration suggesting the effectiveness of institutional monitoring. Although we find no evidence to suggest a politically determined remuneration scheme, the negative relationship between institutional ownership and remuneration becomes less in politically connected firms. This suggests that political connections mitigate institutional monitoring in relationship-based economies.

Challenges and Solutions in Islamic Microfinance

Purpose - – This paper aims to highlight the challenges faced by the Islamic microfinance institutions (MFIs) and map out suggestions in overcoming the issues. Design/methodology/approach - – This is a conceptual paper. Findings - – Among the challenges are low market penetration, sustainability of MFIs due to lack of fund mobilisation and high administrative costs, and the effectiveness of Islamic MFIs in alleviating poverty. Suggested solutions include a collective resolution in increasing bank participation in microfinance and diversifying their portfolios, provision of education and training, better coordination and networking, technical assistance through Practical implications - – Regulators and MFIs can practice the suggestions made in the paper for the benefit of the Originality/value - – Governments can use the suggestions made in the study to develop a sustainable Islamic microfinance framework which can bring about benefits to the country such as taxes and consumption from those who have graduated to a non-poor status.

The New Issue Puzzle in Malaysia: Performance and Earnings Management

The current study seeks to answer the puzzle as to why firms issuing equity produce poor returns to investors in the long run by exploring whether the post issue performance is being influenced by the potential opportuities of earnings management during the period prior to public listing. Using a sample of 187 IPO firms, results in the study shows that firms that go public over the period 1989‐1998 obtained significant negative share return relative to their control firms in the long run. Further analysis provides evidence that managers of Malaysian IPO firms manage their earnings prior to public listing. However, no significant relation is observed between prior earnings management and post issue long run performance. The result is robust with respect to IPO firms with either high or low level of earnings management. Thus, there is no evidence to suggest that the pre offering earnings management is able to predict the negative share return performance post issue. The decline in the post offering share price may be the result of price correction by investors on their beliefs of future earnings based on unfavourable earnings revealed over time by media, analysts reports and subsequent financial statements after listing.

Assessing Business Zakat At Pusat Zakat Selangor: Between Theory and Practice

The main objective of this study is to determine the value measurement used by zakat collection centres, particularly Pusat Zakat Selangor (PZS), in measuring business zakat among companies owned by Muslims in Selangor territory. The study found that PZS assessed zakat from companies financial statements based on historical cost, and not current value as hypothesised by previous researchers. The continuous use of historical cost may lead to negative wealth transfer for zakat beneficiaries particularly in time of rising prices. Even though certain adjustments are made to the assessment, however the purpose of such adjustment is merely to reflect the Islamic philosophy of the implementation of halal and haram as well as different views of Islamic Accounting and Conventional Accounting in recognising income and expenses.