Academic journal article Asian Social Science

Corporate Governance Structure and Its Relationship with Audit Fee-Evidence from Malaysian Public Listed Companies

Academic journal article Asian Social Science

Corporate Governance Structure and Its Relationship with Audit Fee-Evidence from Malaysian Public Listed Companies

Article excerpt

Abstract

This study investigates the relationship between the firms' internal corporate governance mechanisms with audit fee in Malaysia. Different to other study conducted previously, this study also looks at the objectives of the study from the perspective of the newly introduced Malaysian Code of Corporate Governance (MCCG 2007) which was introduced in October 2007. The data consisted of a sample of 300 companies in Bursa Malaysia from pre-MCCG 2007 (year 2006) to post-MCCG 2007 (year 2008) (900 firm-years). Ordinary least square (OLS) regression method was utilized to analyze audit fee hypotheses developed. It was found that in general MCCG 2007 influenced the determinants of audit fee through the restructuring of corporate governance monitoring tools such as audit committee and internal audit function. Future research is recommended to study the impact of MCCG 2007 in a more specific manner such as to incorporate qualitative data and use longer time frame.

Keywords: corporate governance, audit fee, code of corporate governance, Malaysia

(ProQuest: ... denotes formula omitted.)

1. Introduction

1.1 Background of the Study

Malaysia is one of the countries that was heavily affected by the East Asian financial crisis in 1997. Since the aftermath of the 1997 East Asian financial crisis, Asian Tigers including Hong Kong, Singapore and Malaysia (Sawicki, 2009) have taken a leap to improve their Corporate Governance (CG) as it was identified that a weaker CG escalated the crisis (Mitton, 2002). In 2007, the new revised Malaysian Code of Corporate Governance (MCCG) was issued to replace the previous MCCG 2001 and several improvements have been proposed to strengthen the entity's CG especially for those companies which are publicly listed in Bursa Malaysia.

For example, MCCG 2007 focused primarily in improving the effectiveness of the Audit Committee (AC) through improving its composition and independence. Thus, it is expected that the audit structure of the company will improved and consequently lower various risks of the company. Due to this, will there be any changes on the audit fee paid for the audit work performed by the auditor? These interesting questions will be attempted by this study.

There are few study conducted on the audit fee in Malaysia such as Puan, Pamela & Peter (2006), Mark, Balachandran & Abdul (2007) and Effiezal Aswadi, Mazlinah, Kieran &Hasnah (2009). These studies however only focused on the impact of the early implementation of MCCG in 2001. Contrary, this paper will focus more on the impact of the Second MCCG revision in 2007.

Thus, an objective of this study is to investigate the relationship between the firm's internal CG mechanisms with the audit fee charged in Malaysia. The internal CG that become the interest of this study includes ownership concentration, audit committee's composition and operation, chief executive officer's duality, firm's financial position, firm's ownership dominance, political influence, share price and family-controlled. This study further analyzes the impact of the MCCG 2007 on those relationships at three different occasions: prior, post, and during the transitional period to MCCG 2007. The significant of this study is it envisaged to enrich the knowledge of the Malaysian CG as well as give more up-to-date scenario on the audit fee in Malaysia and covers the impact of the recent amendments to the MCCG (MCCG, 2007).

1.2 Literature Review and Hypotheses Development

The research on audit fee worldwide and especially in Malaysia is quite rampant based on past literature. Audit fee is also among the proxies that have been used by researchers to identify audit quality as conducted by Effiezal Aswadi et al. (2009); Mark, Balachandran & Abdul (2007); and Puan et al. (2006). Even, when higher (lower) fees disclosed, investors percieved that aduit quality and auditor effort is high (low), respectively (Beck et al. …

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