Relation between Corporate Governance Attributes and Financial Performance in Oil and Gas Industries
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Abstract
This study explores the relationship between the structure of company board of directors (BOD) and fnancial performance looking at a sample of Malaysian oil and gas companies. In order to show a link exists between BODs and fnancial performance of a frm, the authors examined 28 Malaysian oil and gas companies listed on Bursa Malaysia, using annual data from 2007–2011 fscal years. A multiple regression analysis examined the relationship between the characteristics of BODs and the frms performance relying on fnancial ratios namely, Return on Equity (ROE) and Return on Assets (ROA). Measures of corporate governance attributes employed are: composition of the board, CEO/Chairman duality, board size, independence of nomination committee and a risk management committee. The results revealed that an effective board size had a positive impact on fnancial performance for the Malaysian oil and gas industry but was the study was unable to establish if composition of the board and existence of risk management had a role. Interestingly, the fndings indicate that independence of nomination committee and non-dual leadership structure are signifcantly and inversely related to fnancial performance. The outcome of the study implies that in pursuing the true spirit of corporate governance, having a board that is truly independent of management, with an appropriate number of directors is deemed vital for good financial performance.
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