Corporate strategy, corporate governance and performance of financial institutions in Malaysia

Abstract

We examine the impact of corporate strategy and corporate governance on the performance of finance companies in Malaysia using data from 406 firm-year observations. The results indicate that diversification influence accounting returns negatively while separate risk management committee (RMC) influence market valuation of finance companies positively both in the period after the Asian financial crisis which also is the period after the Malaysian Code on Corporate Governance (MCCG) was issued. Finally, the results indicate significant difference between the period before and after the Asian financial crisis and MCCG in terms of diversification and corporate governance in the finance companies. The results support agency theory which suggests that diversification may create further agency problem between the management and the shareholders.