The purpose of this paper is to study the effect of Malaysian Code on Corporate Governance (MCCG, 2007 and 2012) on the performance of the listed companies in Malaysia. The agency theory and resource dependency theories indicate that the firms with strong corporate governance outperform firms with weaker governance. This paper explores this relationship in a developing country like Malaysia having different institutional environment compared to western countries.
The study used a sample of 113 listed companies in Malaysia. The study incorporates the endogenous relationship between corporate governance, firm performance and leverage.
The study analyzes how the corporate governance framework affected firm performance in Malaysia with the help of self-developed corporate governance index (MCGI). The authors’ findings show that the performance of the firm is positively and significantly related with corporate governance measured by MCGI. Secondly, corporate governance of sample firms shows marked improvements after implementation of MCCG 2012 as compared to MCCG 2007.
The findings of this paper support the agency and the resource dependency theories. The study contributes to the understanding of the relationship between the corporate governance and firm performance in emerging economy and builds a case for enforcement of strong corporate governance code by government agencies.
