Board Characteristics and Muslim Ownership Structure on Value Relevance of Accounting Information: Evidence from Malaysian Shariah Compliant Companies
Corporate reporting is considered important because it provides information to assist internal and external corporate annual report users in making informed decisions. The high quality of financial reporting information is really significant, since employing this information can also lead to an increase in investment efficiency. Owners or shareholders need all necessary financial information for decision making. Nevertheless, even though they own the companies but the management is carried out by a pool of professionals – managers and directors. Thus, the directors set the directions and policies for the management team to run the company’s daily affairs. The separation between ownership and managers in firms leads to the agency problem between them. This study looks into the relationship between corporate governance characteristics (the size of the board of directors, the number of Shariah background directors, number of Muslim female in board, Muslim ownership structure) and value relevance of accounting information. Findings show a positive association between board size and value relevance of accounting information in Malaysian Shariah-compliant firms. However, there is not enough evidence to prove Shariah background members on board can enhance the value relevance of accounting information. Regarding the relationship between the presence of Muslim female directors in the board and the value relevance of accounting information, the results reveal insignificant relationship. The findings also indicate that companies with large Muslim ownership are negatively significant for value relevance of accounting information.
Abdoli, M.R & Royaee, R. (2012). Board monitoring and earnings quality: An empirical study in Iran, African Journal of Business Management, 6(11), 4179-4184.
Abdul Rahman, U. M. A., Dowds, J. & Cahan, S. F. (2005). Earnings management practices among Muslim and non-Muslim managers in Malaysia. International Journal of Economics, Management and Accounting, 13(2), 189-208.
Adams, R. B., Haan, J., Terjesen, S. & Ees, H. (2015). Board diversity: Moving the field forward. Corporate Governance: An International Review, 23(2), 77-82.
Alkdai, H. K. H. & Hanefah, M. M. (2012). Board of directors' characteristics and value relevance of accounting information in Malaysian Shariah-compliant companies: A panel data analysis. Economics and Finance Review, 2(6), 31-44.
Alfraih, M. M., Alanezi, F. S. & Alanzi, K. A. (2015). Do the characteristics of the board of directors affect the value relevance of accounting information? International Journal of Accounting and Finance, 5(2), 172-187.
Alonso-Almeida, M.M, Casani Fern andez de Navarrete, F. & Rodrıguez-Pomeda, J. (2015). Corporate social responsibility perception in business students as future managers: A multifactorial analysis’. Business Ethics: A European Review, 24(1), 1–17.
Al-Janadi, Y., Rahman, R. A. & Omar, N. H. (2013). Corporate governance mechanisms and voluntary disclosure in Saudi Arabia. Research Journal of Finance and Accounting, 4(4), 25-35.
Arellano, M. & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The review of economic studies, 58(2), 277-297.
Aziz, D. (2009). Factors influence capital structure: The case shari ‘ah compliant companies in KLSE (PhD Thesis). USM.
Azzoz, M., Abdel, A. R. & Khamees, B. A. (2016). The impact of corporate governance characteristics on earnings quality and earnings management: Evidence from Jordan. Jordan Journal of Business Administration, 12(1), 187-207.
Beck, T., Levine, R. & Loayza, N. (2000). Finance and the sources of growth. Journal of Financial Economics, 58(1-2), 261–300.
Berle, A. & Means, G. (1932). The modern corporation and private property. New York: Macmillan.
Bursa Malaysia website. (2010). Retrieved from https://www.sc.com.my/wp-content/uploads/eng/html/icm/sas/sc_syariah compliant_101126.pdf.
Burns, P. (1987). Financial characteristics of small companies in the UK, Cranfield School of Management.
Claessens, S. & Yurtoglu, B. B. (2013). Corporate governance in emerging markets: A survey. Emerging Markets Review, 15, 1-33.
Clarke, T. (2007). International corporate governance: A comparative approach. Routledge.
Collins, D. W., Maydew, E. L. & Weiss, I. S. (1997). Changes in the value-relevance of earnings and book values over the past forty years. Journal of Accounting and Economics, 24(1), 39-67.
Eng, L. L. & Mak, Y. T. (2003). Corporate governance and voluntary disclosure. Journal of Accounting & Public Policy, 22(4), 325-345.
Firth, M., Fung, P. M. & Rui, O. M. (2007). Ownership, two-tier board structure, and the informativeness of earnings–Evidence from China. Journal of Accounting and Public Policy, 26(4), 463-496.
Forbes, D. P. & Milliken, F. J. (1999). Cognition and corporate governance: Understanding boards of directors as strategic decision-making groups. Academy of Management Review, 24(3), 489-505.
Francis, J. & Schipper, K. (1999). Have financial statements lost their relevance?. Journal of Accounting Research, 37(2), 319-352.
Grassa, R. (2013). Shariah supervisory system in Islamic financial institutions: New issues and challenges:A comparative analysis between Southeast Asia models and GCC models. Humanomics, 29(4), 333-348.
Haniffa, R. M. & Cooke, T. E. (2002). Culture, corporate governance and disclosure in Malaysian corporations. Abacus, 38(3), 317-349.
Haqqi, A. R. A. (2014). Shariah governance in Islamic financial institution: An appraisal. US-China L. Rev., 11, 112.
Hooy, C. W. & Ali, R. (2017). Does a Muslim CEO matter in Shariah-compliant companies? Evidence from Malaysia. Pacific-Basin Finance Journal, 42, 126-141.
Huafang, X. & Jianguo, Y. (2007). Ownership structure, board composition and corporate voluntary disclosure: Evidence from listed companies in China. Managerial Auditing Journal, 22(6), 604-619.
Janis, I. L. (1972). Victims of groupthink: a psychological study of foreign-policy decisions and fiascoes.
Jensen, M. C. & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360.
Iskander, Amir Emil (2008). The relationship between auditing expectation gap and voluntry sorporate disclosure Egyptian evidence (PhD thesis). University of Durham, UK.
Kamaruddin, M. I. H. & Hanefah, M. M. (2017). Enhancing shariah audit practices in Islamic financial institutions in Malaysia. Journal of Modern Accounting and Auditing, 13(11), 457-470.
Ibrahim, S. H. B. M. (2000). The need for Islamic accounting: perceptions of its objectives and characteristics by Malaysian Muslim accountants and accounting academics (PhD thesis). University of Dundee, UK.
Larrieta-Rubın de Celis, I., Velasco-Balmaseda, E., Fern andez de Bobadilla, S., Alonso-Almeida &
Intxaurburu-Clemente, G. (2015). Does having female managers lead to increased gender equality practices in corporate social responsibility? Business Ethics: A European Review, 24(1), 91–110.
Leuz, C., Nanda, D. & Wysocki, P. (2003). Earnings management and investor protection: An international comparison. Journal of Financial Economics, 69(3), 505–527.
Lipton, M., & Lorsch, J. W. (1992). A modest proposal for improved corporate governance. Business Lawyer, 1(1), 59-77.
Mallin, C. (2002). The relationship between corporate governance, transparency and financial disclosure, Corporate Governance: An International Review, 10(4), 253-255.
Man, C.K. & Wong, B. (2013). Corporate governance and earnings management: A survey. Journal of Applied Business Research, 29(2), 391–418.
Myers, S. C. (1977). Determinants of corporate borrowings. Journal of Financial Economics, 5(2), 147-175.
Klai, N. & Omri, A. (2011). The governance role of the financial information: Empirical evidence in the Tunisian context. Afro-Asian J. of Finance and Accounting, 2(4), 283-298.
Nielsen, S. & Huse, M. (2010). The contribution of women on boards of directors: Going beyond the surface. Corporate Governance: An International Review, 18(2), 136–148.
Noreen, E. (1988). The economics of ethics: A new perspective on agency theory. Accounting, Organizations and Society, 13(4), 359-369.
Ohlson, J.A. (1995). Earnings, book values and dividends in equity valuation. Contemporary Accounting Research, 11 (2), 661-88.
Saringat, S. M., Haron, R. & Tahir, H. H. M. (2013). Income smoothing and Islam: An evidence from Malaysian Shariah compliant companies. International Journal of Social Science and Humanity, 3(2), 160.
Shan, Y. G. (2015). Value relevance, earnings management and corporate governance in China. Emerging Markets Review, 23, 186-207.
Shleifer, A. & Vishny, R. W. (1986). Large shareholders and corporate control. The Journal of Political Economy, 94(3, Part 1), 461-488.
Shleifer, A. & Vishny, R. W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737-783.
Short, H. & Keasey, K. (1999). Managerial ownership and the performance of firms: Evidence from the UK. Journal of Corporate Finance, 5(1), 79-101.
Siekkinen, J. (2017). Board characteristics and the value relevance of fair values. Journal of Management & Governance, 21(2), 435-471.
Sloan, R. G. (2001). Financial accounting and corporate governance: A discussion. Journal of Accounting and Economics, 32(1-3), 335-347.
Sulaiman, M. (2001). Testing a model of Islamic corporate financial reports: Some experimental evidence. IIUM Journal of Economics and Management, 9(2), 115-139.
Petra, S. T. (2007). The effects of corporate governance on the informativeness of earnings. Economics of Governance, 8(2), 129-152.
Pfeffer, J. (1972). Merger as a response to organizational interdependence. Administrative Science Quarterly, 17(3), 382-394.
Vafeas, N. (2000). Board structure and the informativeness of earnings. Journal of Accounting and Public Policy, 19(2), 139-160.
Velte, P. (2017). Do women on management board increase fair value relevance. Corporate Governance and Sustainability Review, 1(1), 6-16.
Wambua, K. P. (2011). The Effects of corporate governance on Saccos financial performance in Kenya (MBA thesis) KCA University, Kenya.
Yermack, D. (1996). Higher market valuation of companies with a small board of directors. Journal of Financial Economics, 40(2), 185-211.
Copyright (c) 2018 The Journal of Muamalat and Islamic Finance Research
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Authors retain copyright and grant the journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows others to share the work with an acknowledgement of the work's authorship and initial publication in this journal.
Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their website) prior to and during the submission process, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
Copyright of the accepted articles will not remain with author(s). Prior to publication of accepted article, author(s) will be asked to assign copyright to the JMIFR. All published articles in the journal are copyrighted to the JMIFR.