Board of Directors and Ownership Structure: A Study on Small and Medium Enterprises (SMEs) in Malaysia

Takiah Mohd Iskandar, Nor Hazwani Hassan, Zuraidah Mohd Sanusi, Zakiah Muhammadun Mohamed

Abstract


ABSTRACT

Small- and medium-sized enterprises (SMEs) do not gain sufficient economic returns despite their significant economic contributions. A possible cause of poor SME performance is weak corporate governance. However, the corporate governance of SMEs is rarely investigated. Ownership structure provides SMEs with a monitoring mechanism that enhances performance. This study examines the relationships between board characteristics (including size, composition boards, CEO duality, expertise, and ethnicity) and SME performance in Malaysia. This study also explores how such relationships can be moderated by monitoring ownership structure. Survey results on SMEs in Klang Valley and Selangor areas show that non-executive boards and CEO duality are significantly and positively related to firm performance. In comparison, management ownership is significantly and negatively related to performance. Board size, expertise, ethnicity, and family ownership are not significantly related to SME performance. Findings indicate that good corporate governance improves decision making and firm performance. Furthermore, agency theory can explain conflict of interest in SMEs and the importance of corporate governance in enhancing their performance.

Keywords: SMEs; corporate governance; CEO duality; ethnicity; managerial ownership; family ownership

ABSTRAK

Meskipun perusahaan kecil dan sederhana (PKS) menyumbang secara signifikan kepada ekonomi negara, sektor ini tidak memperoleh pulangan ekonomi yang lumayan. Prestasi yang lemah ini berlaku mungkin akibat tadbir urus korporat yang tidak kukuh. Namun, bilangan kajian tadbir urus korporat PKS sangat sedikit. Kajian lepas menunjukkan struktur pemilikan merupakan mekanisma pemantauan yang meningkatkan prestasi PKS. Kajian ini meneliti hubungan ciri lembaga pengarah (termasuk saiz, komposisi ahli, pengarah urusan dualiti, kepakaran dan jenis etnik) dengan prestasi PKS di Malaysia. Kajian ini turut meneroka peranan struktur pemilikan menguatkan hubungan tersebut. Hasil tinjauan PKS di sekitar Lembah Klang dan Selangor menunjukkan ahli lembaga pengarah bukan eksekutif dan pengarah urusan dualiti masing-masing mempengaruhi prestasi syarikat secara positif dan signifikan. Pemilikan pengurusan pula mempengaruhi prestasi syarikat secara negatif dan signifikan. Hubungan yang signifikan tidak wujud antara saiz lembaga pengarah, kepakaran, jenis etnik dan pemilikan keluarga dengan prestasi PKS. Secara keseluruhan, hasil kajian menunjukkan bahawa tadbir urus korporat yang baik meningkatkan proses pembuatan keputusan dan prestasi syarikat. Kajian ini membuktikan bahawa teori agensi adalah relevan untuk menerangkan konflik kepentingan di kalangan PKS dan tadbir urus adalah perlu untuk meningkatkan prestasi.

Kata kunci: PKS; tadbir urus korporat; pengarah urusan duality; jenis etnik; pemilikan pengurusan; pemilikan keluarga


Keywords


SMEs; corporate governance; CEO duality; ethnicity; managerial ownership; family ownership

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