Proceedings of 3rd Global Accounting, Finance and Economics Conference
5 - 7 May, 2013, Rydges Melbourne, Australia, ISBN: 978-1-922069-23-8
Women on Boards And Company Financial Performance: A
Study of Malaysian Smes
Ilhaamie Abdul Ghani Azmi and Mary Ann Barrett
Most studies of corporate diversity in Malaysian firms have
focused on publicly listed companies and none on the
SMEs. Thus, this study discusses ways further evidence
may be gained about the effects of having female directors
on the boards of unlisted Malaysian SMEs.
Key words: corporate governance, diversity, firm performance, gender, Malaysia,
SMEs
Introduction
Malaysia, a southeast Asian country, has a population of 29.3 million (MWFCD, 2012),
a Gross Domestic Product (GDP) of 278.7 USD billion (World Bank, 2011) and an
unemployment rate of just under 4 percent. Women constitute nearly half of the
Malaysian population and workforce. More of them than men have first degrees,
although more men than women have postgraduate qualifications (MWFCD, 2012).
However, women are under-represented on corporate boards. Zainal, Zulkifli and Saleh
(2013) found little change in the presence of women directors over the five year period
which reflects a slow progress in board diversity in Malaysia. Firms with women director
tend to have more directors on the board, a greater proportion of Malay directors, family
directors on board and lower profitability. Table 1 shows some representative statistics
about female board membership in Malaysia.
Table 1: Indicators of female board membership in Malaysia
Type of corporate entity
Percentage of women on board
Financial institutions
Insurance firms
100 largest domestic companies
Companies listed on Bursa Malaysia
Government-linked companies (GLC)
6
7
7.8
7.6
8.8
The rate at which women are represented on boards lags behind Singapore, Australia,
China, Thailand and New Zealand (issuu.com/nuslkyschool/docs/wpla). The dominant
reason for this has been claimed to be women’s commitment to their families and their
preference not to work long hours (Amran, 2011). In an effort to change this situation, in
Ilhaamie
Abdul Ghani
Azmi
of
Islamic
Studies,
University of
Malaya,
Malaysia.
Email:amieazmi@um.edu.my, ilhaamie@uow.edu.au
Mary Ann Barrett, Faculty of Commerce, University of Wollongong, Australia. mbarrett@uow.edu.au
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
5 - 7 May, 2013, Rydges Melbourne, Australia, ISBN: 978-1-922069-23-8
June 2011, the Malaysian government established a goal of 30 per cent female board
membership by 2016 following the success of 30 per cent quota of female in senior
positions in public sector (SCM, 2011).
The inconclusive state of knowledge about the impact of the women directors’ on firm
performance, especially in Malaysian SMEs, is the impetus for this study. We will
explore previous research further in the literature review section. Focusing on gender
diversity in an emerging economy is also important as this has the potential to provide
insights about how cultural, economic and social attributes shape the impact of
women’s presence on boards (Abdullah, Ismail and Nachum, 2013).
Background of the study
Most Malaysian companies (70%) are family controlled firms. They form an essential
part of the Malaysian economy and contribute more than half of Malaysia’s GDP. Many
Malaysian family firms evolved from small enterprises and later became giant
conglomerates. About 85 per cent of the membership of these companies’ boards are
family members (Way and Ismail, 2012). Many large family firms have been listed on
the Bursa Malaysia (formerly known as Kuala Lumpur Stock Exchange) (KLSE).
Several previous studies of family businesses in Malaysia seek to establish a
relationship between specific corporate governance mechanisms and firm performance
(see for example Bolbol, 2012; Shukeri, Ong and Shaari, 2012; Marimuthu and
Kolandaisamy, 2009; Amran and Che Ahmad 2009; Wan Yusoff, 2010; Zainal Abidin,
Mustafa Kamal and Jusoff, 2009; Abdullah, 2004). A similar research effort has been
made with GLCs (see Abdul Hamid, 2011). However, studies on corporate governance
and performance in Malaysian SMEs are still in their infancy. The reason could be the
lack of research data on SME performance, as SMEs do not normally publish annual
reports.
Accordingly, this study focuses on SMEs, where women are more likely than in large
firms to be owners and/or board directors (Amran, 2011). Firm size, age, type of
industry and level of technology will be the control variables; financial performance will
be the dependent variable. Given the lack of data about SMEs’ financial performance,
subjective measures of financial performance will be used, following O’Regan (2000).
Economic Contribution of Malaysian SMEs
SME companies in Malaysia can be categorized into three groups, micro, small and
medium enterprises, depending on the number of employees and the firm’s annual
turnover. SMEs companies contribute significantly to the economy, but this contribution,
estimated at 4.5-5.0 percent in 2013 (Haron, Ismail, Yahya, Abdul Khalid and Ganesan,
2010), is still small. Nevertheless, SMEs are expected to record a steady growth pace
of 6.5 - 7.0%, mainly driven by the development of the services sector and increasing
domestic demand (www.smecorp.my).
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
5 - 7 May, 2013, Rydges Melbourne, Australia, ISBN: 978-1-922069-23-8
Literature review
Boards of directors are the strategic leaders in the organization as they make strategic
decisions and set its strategic directions. On an intuitive level, board effectiveness can
be seen important to organizational performance. To operate effectively, these boards
have been argued to require cognitive and demographic diversity, including gender
diversity, so that directors can best carry out their roles and tasks (Maran and
Kolandaisamy, 2009; Zainal, Zulkifli and Saleh, 2013; MDDB 2012).
1. Effects of Diversity on Boards
1a. Gender
Women have been argued to exhibit important characteristics necessary for good
governance. Specifically, they have been argued to be meticulous, risk averse, skilled in
accounting and finance, and good decision-makers. Consequently, HR directors should
prepare women for leadership positions and ultimately make more women available to
be appointed to boards (Nadarajah, 2012). In board meetings, women are said to listen
more openly to the other speakers, to attend to the needs of others, to offer respect and
consideration, and to help the group to identify mutually satisfactory compromises to
solve delicate problems. This is said to be due to women’s cooperative, polite,
sympathetic, and empathetic qualities (Konrad, Kramer & Erkut, 2008).
According to agency and resource dependency theory, women directors behave
differently from their male counterparts, and their presence changes board behaviour as
they are said to provide better monitoring and advisory services. Findings from boards
in Finland support these arguments. For example, Virtanen (2012) found that female
directors took more active roles on boards and used power more than male directors.
Studies show that performance effects attributable to the presence of women on boards
vary across industries and are more substantial in industries where women play a major
role as consumers and employees (Abdullah, Ismail and Nachum, 2013). Thus, the
relationship between women’s representation on corporate boards should be more
substantial in SMEs as it has been found in the USA that lower percentages of women
directors are found in large or hi-growth and high potential firms (Nelson and Levesque,
2007). Having women directors can be easily linked with the interests of stakeholders in
SMEs, including justice issues which are frequently linked to diversity. Having more
women on boards should therefore, increase the reputation of the company (LukerathRovers, 2011).
Abdullah, Ismail and Nachum (2013) found a positive and significant relationship
between the presence of women directors and firms’ accounting performance as
measured by ROA. They attributed this to women’s distinctive managerial styles. In
Malaysia, women also bear an equal financial burden with men to bring up their families
which empower women to make important decisions. Lukerath-Rovers (2011) found
that firms in the Netherlands with women directors perform better in terms of ROE than
firms without women on their boards. This may be because board gender diversity
leads to consideration of a greater range of perspectives and therefore, boards reach
better decisions. Bathula (2008) found a positive and significant relationship between
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
5 - 7 May, 2013, Rydges Melbourne, Australia, ISBN: 978-1-922069-23-8
gender diversity and firm performance in New Zealand. Similarly, Campbell and Vera
(2009), who studied the effect of women on the boards of Spanish firms, found positive
short term (stock market) impacts and positive long term impacts (firm value). However,
some studies in Malaysia found no significant relationship between the gender of
directors (especially female gender) and firm performance (see for example Bolbol,
2102; Ramli and Esa, 2012; Shukeri, Ong and Shaari, 2012; Mohamad, Abdullah,
Mokhtar and Nik Kamil, 2010; Maran, 2009; Maran and Indraah, 2009). This could be
due to differences in national and corporate cultures (Maran and Indraah, 2009). A
study in another developing country, Pakistan, also did not find any significant
relationship between board gender diversity and firm performance measured as
economic value added (see Yasser, 2012).
Minguez-Vera and Lopez-Martinez (2010) also found no significant relationship between
the presence of women on boards in Spanish SMEs and firm performance measured as
ROA. Furthermore, Haslam, Ryan, Kulich, Trojanowski and Atkins (2010) found no
relationship between the presence of women on the boards of UK firms with the firms’
accounting performance measured as ROA and ROE. Similarly, in the USA, Adams and
Ferreira (2009) found the average effect of gender diversity on firm performance to be
negative.
Our first hypothesis is that:
H1a: There is a positive and significant relationship between the presence of women on
boards and the performance of Malaysian SMEs.
1b. Proportion of women to men on corporate boards
Critical mass theory suggests that, the impact of a subgroup becomes more
pronounced when a certain gender threshold is reached. This is because when there is
only one woman on a board, she is regarded as a token. Moreover, her opinions tend to
be regarded as representative of all women (Lukerath-Rovers, 2011). Researchers
have been arguing about the number of women on the board that is needed to lift board
performance. They have concluded that having three or more women on the board
could result in better decision making than if only one woman is on the board. A sole
female director would feel that she is a token, and would find it very hard to be heard
and to convince male directors of her viewpoint. Finally, because meeting issues are
often discussed outside formal meetings, women who do not go in for golf, smoking and
drinking tend to be excluded. When the board has more women, it is more dynamic,
supportive, and collaborative, and women feel freer to discuss their views and to
socialize together (Konrad, Kramer and Erkut, 2008). In general, perceive influence and
information sharing increase with an increase number of women on a corporate board
(Elstad and Ladegard, 2010).
There is only one study in Malaysia that has found significant and positive relationship
between higher numbers of women directors and discretionary accruals (Buniamin,
Johari, Abdul Rahman and Abdul Rauf, 2012). A study in Bangladesh, another
developing country, also found better performance in firms with a higher proportion of
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
5 - 7 May, 2013, Rydges Melbourne, Australia, ISBN: 978-1-922069-23-8
women on the board (performance was measured as Tobin’s Q and ROA) (Mutakkin,
Khan and Subramaniam).
In the Netherlands, Lukerath-Rovers (2011) found that firms with one or more women
directors achieve a higher ROE than firms without women on their boards. However,
Torchia, Calabro and Huse (2011) found a significant and positive relationship with firm
innovation in Norway only when three or more women were board members. Similarly,
Joecks, Pull and Vetter (2012) in Norway also found that firms will achieve a higher
ROE only when the board is ‘balanced’, i.e. it consists of 30 percent women. Erhardt,
Werbel and Shrader (2003) also found a positive and significant relationship between
board gender diversity (measured as a percentage of women directors) with USA firms’
financial performance (measured as ROA and ROI).
Minguez-Vera and Lopez-Martinez (2010) found for Spanish firms that the positive
effect of women directors increases with the proportion of women directors. This result
suggests that increasing the number of women on boards is both necessary for social
justice and protects the interests of shareholders. Women bring a different style to
board tasks and better environmental adaptation. This is a very important result for
SMEs that typically face a highly competitive market environment. In Malaysia, Ahmad
Zaluki (2012) found that companies with more female board directors experience ‘less
underperformance’ than those with fewer women. She attributed her findings to the
possibility that Malaysian companies are focusing on developing Malaysian women for
leadership positions within the firm rather than choosing them as board members.
Lukerath-Rovers (2011), who studied corporate boards in the Netherlands, found few
companies appoint a greater proportion of women than men to corporate boards. She
concluded that country context was not an issue to the proportion of women on boards.
In Sri Lanka, women directors are typically silent directors, and are thus seen as tokens
whose presence makes little impact. This may explain why the study did not find any
significant relationship with firm value measured as Tobin’s Q (Wellage and Locke,
2012). Similarly, in the USA, Carter, D’Souza, Simkins and Simpson (2010) did not find
any significant relationship between the proportion of women directors and the firm’s
financial performance measured as ROA and Tobin’s Q. However, Matlala (2011),
defined board gender diversity in South Africa as existing on boards that comprise 25
percent or more female directors. Matlala did not find any significant relationship
between board gender diversity and financial performance measured as ROE and ROA.
We hypothesize that:
H1b: There is a positive and significant relationship between a higher proportion of
women on boards and firm performance in Malaysian SMEs.
1c. Ethnicity
Malaysia has a diverse population drawn from three main ethnic groups: Malay,
Chinese and Indian. As a result, Malaysia is characterized by a diversity of religious
beliefs, customs, rituals and languages. This national diversity could be translated into
diversity on corporate boards. Having an ethnically diverse board could enhance firm
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
5 - 7 May, 2013, Rydges Melbourne, Australia, ISBN: 978-1-922069-23-8
performance because diversity forces directors to express their ideas clearly and
logically, which in turn enhances the quality of decision making. Moreover, an ethnically
diverse board is forced to be creative and innovative to manage relationships with its
stakeholders ((Maran and Indraah, 2009).
According to Wan Yusoff (2010), board diversity improves decision making, policies and
procedures, and business networking. Some studies in Malaysia have found a positive
and significant relationship between board ethnicity and firm performance (for example
Shukeri, Ong and Shaari, 2012; Maran & Indraah, 2009).
The representation of ethnic groups on boards does not reflect their presence in
Malaysia’s population, with Malaysian Chinese directors accounting for 58% of directors
on corporate boards while Bumiputera (the indigenous ethnic population of Malaysia)
account for about 38 per cent (Wan Yusoff, 2010). Zainal, Zulkifli and Saleh (2013)
found little change in the representation of foreign directors over a five year period,
which reflects slow progress in achieving board diversity in Malaysia. Abdullah, Ismail
and Nachum (2013) found a predominance of Malaysian Chinese in business in
Malaysia and on the boards of Malay companies. Reasons posited for the lack of ethnic
diversity on boards include control by family members or race based political parties,
and the effects of groupthink that leads to excessive homogeneity in decision-making
teams. Female directors are more likely to come from the dominant ethnic group in
Malaysia (Hong Kong Changes and Clearing Limited, 2012).
Some studies have found no relationship between ethnic diversity and firm financial
performance in Malaysia (Maran and Indraah, 2009; Bolbol, 2102, Abdullah, Ismail and
Nachum, 2013), a result that reflects findings in the USA (Carter, D’Souza, Simkins and
Simpson, 2010). Nevertheless, heterogeneity is crucial for firms’ long term survival both
locally and internationally (Maran and Indraah, 2009). Furthermore, Ahmad Zaluki
(2102) found that companies with a higher proportion of foreign ethnic female board
directors experience ‘less underperformance’ compared to the effects of female
representation on the board alone.
We hypothesize that:
H1c: There is a positive and significant relationship between foreign women on board
and performance in SME companies in Malaysia.
1d. Age
Age is argued to be linked with maturity. The older the person is, the more mature she
is thought to be, which would result in a better quality of decision making owing to a
higher level of skills gained throughout the working years. Studies in Malaysia such as
Wan Yusoff (2010) have found that the majority of the directors in Malaysia are more
than 60 years old. Wan Yusoff also found that age contributes to the effectiveness of
Malaysian PLC boards. Furthermore, Poon, Yap and Lee (2013) found a relationship
between the presence of senior directors and firm performance. This is because senior
directors are more knowledgeable, creative and innovative. Virtanen (2012) found in
Finland that female directors are on average younger than male directors, which would
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
5 - 7 May, 2013, Rydges Melbourne, Australia, ISBN: 978-1-922069-23-8
tend to mean that the benefits of female board members’ wisdom and experience would
be less evident.
We hypothesize that:
H1d: There is a positive and significant relationship between a higher average age of
women directors and the performance of Malaysian SMEs.
2. Cognitive diversity
Intuitive boards should benefit from a diverse mix of knowledge, background and
expertise among their members. To perform better, companies need women (and men)
directors who possess the right competences i.e. knowledge, skills and experience, to
contribute to board decision making. According to the MCCG code in 2012, the
competences of board members should be formally assessed to ensure that individual
directors have the right character, values and skills for specific situations (SCM, 2011).
2a. Knowledge
In Malaysia, a higher proportion of women than men hold first degrees. Thus, Malaysian
women are educated and knowledgeable. This is a similar situation to Finland (Virtanen,
2012). Wan Yusoff (2010) found that relevant knowledge and educational qualifications
are integral components of the effectiveness of Malaysian PLC boards.
Meanwhile, studies on corporate governance in Malaysia such as Buniamin, Johari,
Abdul Rahman and Abdul Rauf (2012) did not find any relationship between board
members’ competency, measured in terms of professional education in finance and
accounting, with higher discretionary activities by the board. Studies in New Zealand
such as Bathula (2008) also found that having directors with PhDs was negatively
related with firm performance.
We hypothesize that:
H2a: There is a positive and significant relationship between educated women on the
board and performance in SME companies in Malaysia.
2b. Skills and training
The Women Director Programme (WDP) in Malaysia has introduced programmes to
train women directors to ensure that they possess the right skills and to give them some
exposure to directorship tasks. Moreover, public listing requirements for Malaysian
firms state that companies must continuously evaluate and determine the training needs
that are relevant to their directors. It requires board members to disclose the training
programmes they have attended in the annual report and to state the reasons for nonattendance.
Wan Yusoff and Armstrong in 2012 have found that the most important skills directors
should possess are financial and accounting skills, while Wan Yusoff (2010) found that
technical skills especially in business and management are the most important. She
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
5 - 7 May, 2013, Rydges Melbourne, Australia, ISBN: 978-1-922069-23-8
also found that relevant skills are an integral component of the effectiveness of
Malaysian PLC boards.
However, according to Talmud and Izraeli (1999), women directors in public traded
corporations in Israel are more likely than men to be concerned with not having
adequate skills for serving on the board. Thus, they feel a greater need to prove
themselves constantly.
We hypothesize that:
H2b: There is a positive and significant relationship between skilled women on the
board and performance in SME companies in Malaysia.
2c. Experience
To be selected as a board director requires experience, and making good decisions
also requires experience. Most board directors in Malaysia have less than nine years’
board experience (Securities Commission Malaysia, 2011). Wan Yusoff (2010) found
that only about 3.5 percent of independent directors are women while the majority of
women directors are retired government officers. She also found that experience in
corporate management is an integral component of the effectiveness of Malaysian PLC
boards. Furthermore, Poon, Yap and Lee (2013) state that there is a relationship
between firm performance and directors’ seniority.
We hypothesize that:
H2c: There is a positive and significant relationship between the level of women
directors’ board experience and the performance of Malaysian SMEs.
3. Remuneration
Remuneration is often argued to be essential to people’s motivation to work hard. It has
been found that women directors are paid less than male directors, because Malaysian
employment law does not prevent employers from paying lower wages to women for
equal work (Ahmad Zaluki, 2012).
However, Buniamin, Johari, Abdul Rahman and Abdul Rauf (2012) did not find any
relationship between directors’ remuneration and higher discretionary activities by the
board. This could be because independent non-executive directors are underpaid at
RM600-RM3000 per day whereas they should be paid between RM4,000 and RM5,000
per day if their remuneration is to match that of their executive colleagues on the board.
Underpayment could impede the role of independent directors in executing their tasks
and responsibilities.
We hypothesize that:
H3: There is a significant and negative relationship between women directors’
remuneration and the performance of Malaysian SMEs.
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
5 - 7 May, 2013, Rydges Melbourne, Australia, ISBN: 978-1-922069-23-8
4. Role Duality
Amran and Che Ahmad (2009) state that 70 per cent of Malaysian businesses are
family owned and that these businesses make the largest contribution to Malaysian
GDP. Studies have found that family owned businesses have enjoyed greater
improvement in performance than non-family businesses, an effect thought to be due to
the strong values associated with family companies. Moreover, family owned
businesses typically appoint a substantial number of family members to the board of
directors. Way and Ismail (2012) point out that 40.4 percent of family Malaysian
companies have only one shareholder. Wan Yusoff (2010) found that the majority of
publicly listed companies that practice role duality are Chinese companies, a
consequence of the fact that most Chinese companies are family businesses.
We would expect to find the same phenomenon in SMEs as most of them are family
businesses. In addition, they are less structurally complex, so their boards could be
expected to operate in a less formal way and to exercise less control. Furthermore,
share ownership is usually more concentrated in SMEs (Minguez-Vera and LopezMartinez, 2010). Thus, women directors, where they are appointed, may owe their
position of duality to their membership of the owning family. This is in contrast to
publicly listed companies where there is greater likelihood of separation between CEO
and the board.
An agency theory perspective suggests that being simultaneously CEO and chair of the
board could adversely affect performance as female (and male) directors would face
conflict in fulfilling both roles and this would reduce firm performance (Yasser, 2012).
Moreover, CEOs who also chair the board have more power to ensure their wealth
accumulates than do minority shareholders. Furthermore, they have more power to
select the directors that they want, leading to a tendency for them to select directors that
they favour regardless of these directors’ performance. The MCCG recommended in
2012 that there should be separation of the roles of chairman and CEOs to ensure an
appropriate balance of power on boards
Moreover, some studies in Malaysia have found a significant and negative relationship
between CEO/role duality and performance measured as dividend payout (Bolbol Islam,
2012), In contrast, Bathula found CEO duality to be positively related to firm
performance in New Zealand. On the other hand, the findings of Shukeri, Ong and
Shaari (2012), Bolbol (2012), Abdul Hamid (2011), Zainal Abidin, Mustafa Kamal and
Jusoff (2009), Abdullah (2004) and Daily and Dalton (1992) did not support this result.
Thus, we hypothesize that:
H4: There is a significant and negative relationship between women directors’ role
duality and the performance of Malaysian SMEs.
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
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5. Financial Performance
Following O’Regan (2000) financial performance which is the dependent variable in this
study is to be measured subjectively due to lack of publicly available quantitative data
about financial performance of SMEs in Malaysia.
Methodology
Research Design
This study is a quantitative study whereby data will be collected through questionnaires
developed from elements of previous studies. The questionnaire will be posted on
SurveyMonkey which will allow data to be gathered online.
Unit of Analysis
The targeted respondents of this study are members of the board of directors including
the CEO or managing director, executive/insider directors and non-executive/outsider
directors. Thus, individuals are the unit of analysis of this study. .
Sampling design and Data Collection
For this study, a simple random sampling technique will be used to obtain a sample of
respondents. This will ensure that the findings will be generalizable to the whole SME
population. The majority of SMEs in Malaysia belong to the service sector (90%), and
79.6 per cent belong to micro companies of which the majority are engaged in the
wholesale, retail or repair sectors. Most service SMEs are located in Selangor. The
service sector contributes the most to employment in Malaysia (SMECORP, 2011).
This is in line with the observation that women are more often employed in the service
sector, in labour intensive industries, or in women’s products industries than in
manufacturing and diversified industries (Farrell and Hersch, 2005). Furthermore, to
ensure that this study will get responses especially about firm performance, the
questionnaire will be distributed only to the private limited companies (18.4 percent of
Malaysian SMEs) and partnership companies (8.5 percent of SMEs) (SMECORP,
2011).
Data Measures
Three dummy variables will be used to indicate the gender diversity of the board of
directors. The first dummy variable will be the board with no female directors. The
second will be for boards with one female director and the third will be for boards with
more than one female director. The first group (boards without women) will serve as the
baseline or reference group. The second group will be coded as 1 for one female
director and 0 for otherwise, and the third group will be coded as 1 for more than one
female director and 0 for otherwise (Torchia, Calabro and Huse, 2011). Ethnic diversity
will be measured by a dummy variable whereby firms that have one or more directors
of foreign ethnicity will be respectively coded as 1, while firms that have no directors of
foreign ethnicity will be coded as 0 (Zainal, Zulkifli and Saleh, 2013).
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Proceedings of 3rd Global Accounting, Finance and Economics Conference
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The following corporate governance variables will be included in this study. Age will be
coded as 1 for more than sixty years old and 0 for others. Knowledge and skill will be
measured by level of highest education qualification, while experience will be measured
by number of years working as directors. Remuneration is measured by the amount of
allowances received from the company. Role duality will be measured by 1 for a female
CEO and 0 for female CEOs who are also chairs of the board. Board size will be
defined as the logarithm of the total number of directors (Wellalage & Locke, 2012). The
control variable, firm size, will be determined by firm total assets, while firm age will be
defined as the number of years of firm operation (Maran and Indraah, 2009). Type of
industry will be coded as 1 for service and 0 for others, and level of technology will be
coded as 1 if the company has an IT system and 0 if it does not. Financial
performance, the dependent variable in this study, will be measured subjectively by
using Likert scale following O’Regan (2000).
Conclusion
One of the contributions of this study will be that it focuses on Malaysian SMEs whereas
most previous evidence in Malaysia and elsewhere concerning the relationship between
boards and firm performance has been taken from listed firms. SMEs are very
important in Malaysia because of their number and their contribution to employment.
The study’s second contribution will be through the use of perceptual measures to
assess financial performance in Malaysian SMEs. Meanwhile, the third contribution
would be the testing of the critical mass theory in Malaysia’s context.
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