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Relation between Corporate Governance Attributes and Financial Performance in Oil and Gas Industries

Author

Listed:
  • Tze San Ong

    (Department of accounting and Finance, Faculty or Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia)

  • Teh Boon Heng

    (Faculty of Management, Multimedia University, 63100 Cyberjaya Selangor, Malaysia)

  • Nuranisma Ahmad

    (Department of accounting and Finance, Faculty or Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia)

  • Haslinah Muhamad

    (Department of accounting and Finance, Faculty or Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia)

Abstract

This study explores the relationship between the structure of company board of directors (BOD) and financial performance looking at a sample of Malaysian oil and gas companies. In order to show a link exists between BODs and financial performance of a firm, the authors examined 28 Malaysian oil and gas companies listed on Bursa Malaysia, using annual data from 2007–2011 fiscal years. A multiple regression analysis examined the relationship between the characteristics of BODs and the firms performance relying on financial 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 financial 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 findings indicate that independence of nomination committee and non-dual leadership structure are significantly and inversely related to financial 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.

Suggested Citation

  • Tze San Ong & Teh Boon Heng & Nuranisma Ahmad & Haslinah Muhamad, 2015. "Relation between Corporate Governance Attributes and Financial Performance in Oil and Gas Industries," Institutions and Economies (formerly known as International Journal of Institutions and Economies), Faculty of Economics and Administration, University of Malaya, vol. 7(2), pages 56-84, July.
    • Handle: RePEc:umk:journl:v:7:y:2015:i:2:p:56-84
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    Citations

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    Cited by:

    1. Ahsan Waqar & Idris Othman & Roberto Alonso González-Lezcano, 2023. "Challenges to the Implementation of BIM for the Risk Management of Oil and Gas Construction Projects: Structural Equation Modeling Approach," Sustainability, MDPI, vol. 15(10), pages 1-28, May.
    2. Rahayati Ahmad & Roshima Said & Syahiza Arsad, 2017. "The Board Governance Mechanism and the Effect of Concentration Ownership on Malaysia Companies Performance," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 7(2), pages 757-768, February.

    More about this item

    Keywords

    Corporate Governance; Characteristics of Board of Directors; ROA; ROE; Oil and Gas;
    All these keywords.

    JEL classification:

    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M14 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Corporate Culture; Diversity; Social Responsibility
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

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