Characteristics of board of directors and companies subject to regulatory enforcement action by bursa Malaysia

Bursa Malaysia is the forefront regulator in maintaining a fair and orderly Malaysian capital market. Enforcement actions against companies for violating its listing requirements is crucial in deterring future breach and nurturing the good practice of corporate governance and business conduct. High compliance and good governance practice ensure the companies are managed to the best interest of the shareholders. Empirical studies prove that enforcement actions and corporate governance are significantly related. However, few studies have been conducted in Malaysia. This study investigated the relationship between the Bursa enforcement actions against public listed companies for related financial reporting breaches and key person attributes, audit committee, and directors’ training. Data was collected from the annual reports of 262 companies from 2007 until 2016. Both descriptive and logistic analyses were applied to address the research objectives. This study applied a cross-section, and a match-pair design with a sample of 131 reprimand companies were matched with 131 non-reprimand companies. Results of the logistic regression showed that there were a few significant differences in board characteristics between these two groups of companies. The significant variables discovered in this study were CEO age, audit
committee chairman directorship, audit committee financial literacy and diligence, and directors’ financial training. The small sample size was among the limitations of this study. The findings demonstrate the relevance of company key persons attributes and
audit committee attributes in ensuring better compliance with Bursa Malaysia rules and regulations. The findings also provide empirical evidence on the important number of directorships, directors’ financial literacy and directors’ financial training for the quality
of companies’ financial reporting. Thus, regulators and policy-makers need to note the importance of financial literacy among audit committees and financial training among directors as well as some characteristics of the CEO and audit committee chairman that contribute to higher compliance.