Moderation effect of CEO choice on the relationship between corporate governance and family firm performance

Mandatory imposition of Malaysian Code of Corporate Governance (MCCG) since 31st December 2012 seems to be associated with serious endeavours done by the regulators and policy makers to enhance the stakeholder’s value for public listed companies in Bursa Malaysia. Besides establishing the code that involved
independent non-executive directors, the world’s trend for choosing outsiders as CEOs becomes familiar amongst family controlled-firms (FCFs) in Malaysia. In
terms of shareholder and stewardship theories, this latest trend frequently happens in FCF with opportunity for expropriation due to the highly persuasive cash flow rights. The failure of Minority Shareholder Watchdog Group’s (MSWG) roles in establishing stakeholder theory motivates this study to investigate the moderation effects of CEO choice on corporate governance and FCF performance relationship by
using ROA, EVA, and Tobin’s Q with the application of signalling theory. FCF
population for the financial year of 2010 and 2011 were consecutively rated accordingly using the MCCG index scores issued by MSWG in 2009. The study reveals that CEO choice has moderating positive effects towards the board of
directors’ structure and FCF’s performance relationship that are significant to Tobin’s Q model. After further analysis, it was found that the positive effect comes from insider CEOs. Inevitably, the transformation of negative magnitude seems to have a synergic impact which combining both CEOs of FCF as a new trend for its corporate value and investors’ wealth. Eventually, the present study suggests the regulators and policy makers to reconsider specific governance codes for FCF in order to lessen the dominance of agency theory