Characteristics of Board of Directors and Financial Distress: A Malaysian Case (Ciri-ciri Lembaga Pengarah dan Masalah Kewangan: Kes di Malaysia)

Takiah Mohd Iskandar, Zulridah Mohd Nor, Noraini Omar

Abstract


ABSTRACT

This paper examines the relationship between the characteristics of boards of directors and the financial distress of companies listed on Bursa Malaysia. The sample consists of 68 companies whose listing status on Bursa Malaysia was being suspended between 2005 and 2009, under the provision of Practice Note 17 (PN17) of the Bursa Malaysia Listing Requirements. The study develops a multinomial logit regression model to test three categories of PN17 listing statuses: re-listed on Bursa Malaysia, remain as PN17, and de-listed from Bursa Malaysia. The model relates the listing status to five characteristics of the boards of directors as independent variables, specifically leadership structure, equity ownership, board involvement, financial literacy and multiple directorships of board members; and four control variables, namely firm size, leverage, return on assets and audit quality. The study expects that the success of PN17 listing outcomes depends on the ability of the board of directors to establish and implement the restructuring plan. The results show that the re-listing of PN17companies is negatively related to financial literacy and equity ownership of the board of directors and positively related to the involvement of the board. The results imply that boards of directors with a lower ownership and financial literacy, but more actively involved, are more capable of overcoming financial difficulties.

ABSTRAK

Kajian ini memeriksa hubungan antara ciri-ciri lembaga pengarah dengan masalah kewangan syarikat tersenarai di Bursa Malaysia. Sampel terdiri daripada 68 buah syarikat yang digantung penyenaraiannya daripada Bursa Malaysia dari tahun 2005 hingga 2009 berdasarkan peruntukan Nota Amalan 17 (PN17), Keperluan Penyenaraian Bursa Malaysia. Kajian ini membangun model regresi logit multinomial untuk menguji tiga kategori status penyenaraian PN17 khususnya tersenarai semula di Bursa Malaysia, kekal di bawah PN17 dan dikeluarkan dari senarai daripada Bursa Malaysia. Model tersebut menghubungkan status penyenaraian PN17 dengan lima ciri lembaga pengarah iaitu struktur kepimpinan, keterlibatan, pemilikan ekuiti, keupayaan kewangan dan kepelbagaian keahlian lembaga pengarah, serta empat pemboleh ubah kawalan iaitu saiz firma, leveraj, pulangan aset dan kualiti audit. Kajian ini menjangka kejayaan penyenaraian semula syarikat PN17 bergantung kepada kebolehan lembaga pengarahnya membentuk dan melaksanakan pelan penstrukturan semula. Hasil kajian ini menunjukkan penyenaraian semula PN17 berhubung secara negatif dengan keupayaan kewangan dan pemilikan ekuiti lembaga pengarah dan berhubung secara positif dengan keterlibatan lembaga pengarah. Hasil kajian menggambarkan bahawa lembaga pengarah yang mempunyai pemilikan ekuiti dan keupayaan kewangan yang rendah tetapi mempunyai tahap keterlibatan yang tinggi lebih berjaya membantu syarikat PN17 mengatasi masalah kewangan.


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