Enterprise Risk Management and Performance ... - journal-archieves32

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS

MAY 2013

VOL 5, NO 1

Enterprise Risk Management and Performance in Malaysia Shima Nickmanesh1, Mahmood zohoori2, Happy Andira Musriyama Musram3, Akbar Akbari4 1. MBA, Multimedia University, Malaysia 2. Master of environmental technology management, Faculty of engineering, UPM, 3. MBA, Multimedia University, Malaysia 4. Ph.D Student, Faculty of Management (FM), University Technology Malaysia (UTM)

Abstract In former studies, the significant and basic roles of board of director‟s characteristics were showcased, on the other hand, the role of board of directors in managing firm‟s risk, can highlight the relationship between board of directors and enterprise risk management (ERM). This relation has a definite effect on organizational performance measures. There are two principal theories of corporate governance that can support relationship between board‟s characteristics and organizational performance. These theories are agency theory and stewardship theory that have a special focus on this relationship and in this study these theories will be used as the anchor. This study attempts to identify critical factors that are dependent to board of directors and enterprise risk management and finally will present a new framework to show the relationship between those factors and output measures such as ROA and turnover to show critical indicators for evaluating organizational performance. In this research, these indicators are defined as the dependent variable and on the other hand, board size, number of independent non-executive directors, Number of directors with Financial expertise, existence of risk management committee, Size of risk management committee, and Separateness of risk management and audit committee are independents variables and Age of company, Total assets, Number of Foreign subsidiaries, and Type of Industry (Service oriented, Manufacturing, Raw materials, and more than one industry) are control variables in this study. The presented framework is defined according to those variables including two dependent variables and six independentvariables; by using multiple regression, the hypotheses were tested with 175 companies that are listed in Bursa Malaysia and the results show that the Number of independent non-executive members and the size of the risk management committee, have significant positive impacts on ROA. Besides, Board Size and Number of independent non- executive directorshave positive and significant impacts on LogTurnover. On the other hand, it is found that there is a significant and negative relationship between the existence of risk management committee and ROA. Keywords: Corporate Governance, ERM, ROA, Turnover, Risk, Board of Directors, Risk Management Committee, Malaysia COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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1. Background Nowadays, researchers and managers evaluate any changes and activity based on its outcome, so they try to measure these activities and their impacts on outcomes. Outcomes can be equivalent to firm and organization performance. According to Kaplan and Norton (1992), any organization can have four perspectives (Customers, Internal Process, Learning and Growth, Financial) for its performance. Thus, any activity will show its impact in at least one of these perspectives. Organization‟ decisions are usually done according to objectives and goals. Furthermore, Risk as a main part in financial decision has a vital role in many aspects. Enterprise Risk Management (ERM) in todays‟ business is an issue that affects managing risks and seizing opportunities based on organization‟s goals and objectives. ERM concept was developed in the mid-1990s in industries, with a managerial focus. There are eighty (80) risk management frameworks reported worldwide which include that of Committee of Sponsoring Organizations of Treadway Commission (COSO) 2004 (Olsen and Wu, 2008). COSO is a leading accounting standards organization, and focuses on aiming to identify board supervision, evaluate and manage all major corporate risks in an integrated framework (Dickinson, 2001). The agency theory emphasizes on terms that could assist an organization to achieve its goal and finally increase value of shareholders (Bowen, 2005; Nocco and Stulz, 2006). Some companies which have the programs of risk–base or shareholder value management could add extra value to shareholders‟ value (Bowen, 2005). According to Allayannis and Weston (1998), active risk management is referred to the shareholders‟ value. 1.1. Enterprise Risk Management (ERM) Based on Mikes (2005), Enterprise Risk Management (ERM) can be defined as a systematic approach for managing risk. By effectively managing risk, companies and organizations alike, could possibly achieve their corporate objectives and eventually create value for their stakeholders. Besides, Shenkir& Walker (2006) suggested that an effective ERM implementation requires an organization context that includes strong commitment from the top management, Risk Management philosophy and risk appetite, integrity and ethical values, and also the scope and infrastructure for ERM.

Enterprise Risk Management (ERM) has become a well-known context all around the world. In fact, it is a new concept for businesses and industries to focus on. Nowadays, it has COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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become the final term to impact Risk management. Particularly, ERM is considered to extend the board and senior manager‟s capabilities to investigate general samples of risk that confronts an enterprise (Beasley et al., 2006). Besides, Enterprise Risk Management covers a particular competitive source for those groups of people with a high potentiality of ERM and strength (Stoh, 2005).

It is believed that ERM system cannot be mentioned in a static regulation which is driven from the general nature of risk. Some of the risks can be confronted with some changes of the organization like macroeconomic, industry specific, country specific and firm specific. Although these risks are going to be changed every time but the risk management would be measured on the regular issues. This evaluation and review can happen in all of the organizations specified due to the explanation of the ERM. The internal environment can determine the ERM entity philosophy and can also affect the risk driven from the employees and their decisions. Board of directors and management make philosophies for risk management and help them to realize how they can control risks. So much so, it is considered to construct the organizational interest for risk culture, and the ERM‟s value (COSO book 2008). The philosophy of the risk management is organized by the top managers and board of director‟s risk management philosophies can be varied due to the organized outcomes of the organization. For example, companies with the interest of venture capital are attracted to the risk culture. These researches happen with some knowledge in particular risks but they wonderif these risks are able to pay dividends in the upcoming future. On the other hand, a majority of the matured organizations would determine risk aversion. Other companies may be able to create a good profit by producing the same products with only a little change over a long period of time like restaurants, soap products companies, and paper producers. We can safely express thatthe risk management philosophy of the organizationcannot be mentioned briefly but it can be a goal that is distributed to the employees inside all the parts of the organization(COSO 2004). The organizational structure is another factor of the internal environment. Some companies like matrix and bureaucratic organizationsare present in the world but they must do something to make the communication easier inside the organizations. Therefore, it can permit managers to decide, plan, monitor, and evaluate the performance inside the companies. Sometimes, the structure of the organization is the function due to its basic recent COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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beliefs. From the time of growing and shrinking matters of the companies, these functions may be changed to ensure the continuation of communications. In addition, organizational structure can cover a vehicle for some responsibilities and powers‟ assignments. This could lead to the basic factor of internal control as mentioned in COSO (2004). Complexity of business nowadays has increased rapidly; firms have to find ways to manage business risk. There are two questions; first, can be risk identified and managed? In addition, the next question arises whether it can improve firm performance? This study seeks to explore and respond to the above research questions. A common challenge in most of the literature is the ERM system which will be useful for developing the performance of a firm if it was applied (for instance, Stulz, 1996; COSO, 2004; Barton et al., 2002; Lam, 2003; Hoyt and Liebenberg, 2009). According to Hoyt and Liebenberg (2009), the data can cover the argument which is derived from the insurance company and applied Tobin‟s Q measurement for the evaluation of the performance. In fact, the first one is referred to as the ERM system which is applied by many firms. For example, Gates and Hexter, (2005) mentioned other facts to support the ERM system that can extend the performance of the firms. However, basic proofs show that the relation between performance of the firms and ERM is completely limited and it‟s not a measurement for ERM. According to Lawrence et al (2009), the investigation of the relationship between ERM and organizational performance (regarding proper match with contingency factor) should not be limited to several specific years, and it should be investigated for other years as well. There are many studies in the past that have focused on investigating the implication of corporate governance mechanism; it means the effect of board characteristics on firm performance. Dalton, Daily,Ellstrand, and Johnson (1998), Laing and Weir (1999) and Weir, Laing, and Mcknight(2002) found little evidence to suggest that board characteristics has potential to influence firm performance. Based on some studies by Bhagat& Black (1999), Kiel & Nicholson (2003), and Bonn (2004), there is a relationship between mechanism of governance such as internal governance related to board of directors and its characteristics and firm performance. This study attempts to investigate the impacts of board characteristics (board size, number of non-executive directors, and number of directors with financial expertise), nature of risk management committee and firm performance. Nature of risk management can include existence of risk management committee, separateness of risk management committee and COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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audit committee, and size of committee. Undoubtedly, this issue is related to corporate governance and especially ERM, and it seems that investigating the impact of risk management committee characteristics on firm performance is a gap in previous studies. In this regard, the scope of this study is all companies that are indexed in Bursa Malaysia. Furthermore, they are categorized based on their industry including services, manufacturing, raw materials, and more than one industry.

2. Literature Review 2.1.

Traditional risk management and ERM

Generally, not only can risk management create value for a company but it can also cover the general economic growth by decreasing the capital cost and activities related to commercial uncertainty. Shenkir and Walker (2006) believed that the model of ERM needs executive management commitment in order for accurate implementation, following the Committee of Sponsoring Organizations of the Treadway Commission (COSO). It is highly believed that executives of companies have the tendency to create a commitment to ERM as they have the responsibility for general support, creation and growth of shareholder‟s value. According to (COSO, 2004) there are some differences between traditional risk management and ERM as summarized in the following table: Table1: Differences between ERM and Traditional Risk Management (COSO, 2004) Traditional Risk Management

ERM

Risk as individual hazards

Risk viewed in context of business strategy

Risk identification & assessment

Risk portfolio development

Focus on discrete risks

Focus on critical risks

Risk mitigation

Risk optimization

Risks with no owners

Defined risk responsibilities

Haphazard risk quantification

Monitoring & measurement of risk

“Risk is not my responsibility”

“risk is everyone’s responsibility”

2.2.

Different Types of Risk

Based onHammond et al. (2007), risks can be considered as threats, but businesses exist to cope with specific risks. Thus, if they encounter a risk that they are specialized in dealing

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with, the encounter is viewed as an opportunity. Risks have been categorized into five groups: 1. Opportunities- events presenting a favorable combination of circumstances giving rise to the chance for beneficial activity; 2. Killer risks-events presenting an unfavorable combination of circumstances leading to hazard or major loss or damage resulting in permanent cessation; 3. Other Perils- events presenting an unfavorable combination of circumstances leading to hazard or damage leading to disruption of operations with possible financial loss; 4. Cross functional risks-common risks leading to potential loss of reputation; 5. Business process unique risks- risks occurring within a specific operation or process, such as withdrawal of particular product for quality reasons.

2.3.

Corporate Governance

Corporate governance doesn‟t have any particular explanation as well. One of the approaches that have been applied for corporate governance contributed to the association between shareholders and companies. So much so, corporate governance referred to finance issues and engaged merely with managers and shareholders as contributed below: Steps of monitoring and controlling intended to guarantee that management of companies undertaken are due to the shareholders interest(Parkinson, 1994, p59). Mechanism of corporate governance is divided into two types, basically. The first group refers to the internal governance mechanism which is placed as equal to manager‟s interest to shareholders inside the companies involving managerial incentive plans and board of directors, structure owners and other system of control which is internal (Braga et al., 2011). The second group refers to the mechanism of external governance. These groups occur when companies are in a competitive atmosphere with various constraints, market forces and laws. Therefore, it should involve an external mechanism to monitor the companies‟ systems (Braga et al., 2011). A variety of models in corporate governance emphasize on managers interest in shareholders‟ interest of each company. Subsequently, the method to encourage managers to have the interest of shareholders is more crucial compared to their own interest to receive back the profits for shareholders (Fama and Jensen, 1983). COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS 2.4.

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Development of Corporate Governance in Malaysia

Before the Financial Crisis, in most of the Asian countries as well as Malaysia, there was a similarity between the British and Malaysian political, legal, institutional and administrative basics and particularly in the capital market, corporate regulations and laws because of the colonial link of Malaysia with Britain. Looking at corporate governance, the effect of the British Colonial provides a framework for Malaysian corporate governance in KLSE listing requirements, concentrating on transparency and accountability in the firm‟s governance. The table below shows a brief of governance initiatives from 1965 to 1997 before the crisis in Malaysia Table 2: Governance Initiative during 1965-1997 Year

Initiative Established

1965

The Malaysian Companies Act

1973

The Securities Act

1987

Malaysian Code on Take-Overs and Mergers

1989

Banking and Financial Institution Act

1991

The Securities Industry (Central Depositories) Act

1993

Securities Commission Act

1993

The futures Industry Act

1995

Amendments to Securities Commission Act

1997

The Financial reporting Act

Sources: Securities Commission (2001) and Boo YeangKhoo (2003) Various reforms were applied as a way of providing the transparency, accountability and protection of shareholder's interest after the financial crisis (1997) in Malaysia. In 1998, a High Level Finance Committee (HLFC) was established in order to start a detailed study of corporate governance in Malaysia and based on the findings, make recommendations for improvements. The Malaysian Institute of Corporate Governance was established to raise awareness and practice of good corporate governance in Malaysia. In 1999, the Malaysian Institute of Code and Takeovers and Mergers was amended to improve the standards of corporate disclosure and behaviour for those involved in mergers and acquisitions for it to reflect international best practices. In the same year, the Bursa Malaysia listing requirements COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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were amended to require quarterly financial reporting of information which is prepared in line with approved accounting standards of the Malaysian Standards Board.

The Malaysian Code on Corporate Governance was formed. On top of that, Securities CommissionAct was settled in 2000; it was done to simplify the responsibilities of the Security Commission and the Registrar of Companies in the area of prospectus regulation thus resulting in greater legal and regulatory certainty. Moreover, the Minority Shareholders Watchdog Group (MSWG) was incorporated in 2000 as a public company limited by guarantee.

When the major revamp of the KLSE listing requirement was released in 2000, the focal point was the enhancement of standard of corporate governance and investor protection among listed companies by the introduction of new provisions and the strengthening of existing provisions. In 2001, the financial Sector Master Plan was released in order to portray the future direction of the financial system from 2001 to 2010. Its main objective was to make a competitive, dynamic, flexible and financial system that is able to meet more demands of consumers and business. In 2001, the Malaysian Capital Market Master Plan was released in 2001 to further develop the Malaysian corporate governance reform agenda. It had 152 recommendations that dealt with developing institutional and regulatory framework for the capital market from 2001 to 2010 and 10 of them are for corporate governance. The Institute of Internal Auditors issued guidelines on the internal control function in 2002. They were meant to help the board of directors in discharging their roles in relation to the establishment of internal

audit functions. The Corporate Law Reform Committee was

formed to spearhead the corporate law program. This was done in 2003 and the objective was to undertake a comprehensive review of the corporate law in Malaysia. The Securities Industry Act 983 was amended in 2004 to grant the Securities Commission a variety of sanctions that it can impose for breach of the exchange of listing requirement. It was done to introduce whistle blowing provisions. The provisions include duty for auditors to report to the relevant authorities breaches of securities laws and listing requirements, and protection against retaliation for CEO's, secretaries, auditors, and CFOs who report to the authorities on company wrong doings.


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In order to improve the profile of Bursa Malaysia‟s competitive edge and to instill discipline, transparency and efficiency at the exchange, Bursa Malaysia Berhad was listed on the Main Board of Bursa Malaysia Securities in 2005. Moreover, Bank Negara Malaysia issued Guidelines on Corporate Governance for Licensed Institutions in 2005. It was done to promote high standards of practices by licensed institutions and bank/ finance holding companies. Prospectus Guidelines were revised in 2005 to expedite processing corporate proposals and boost efficiency of raising funds. In 2005, the shareholder's Pro Term Committee was formed to make recommendations and decide on best practices and standards for Institutional Shareholders. The Malaysian Code on Corporate governance was revised in 2007 to strengthen practices geared towards developments in the domestic and international capital market. The amendments made in 2008 regarding corporate governance related to the effectiveness of the audit committee and the mandatory internal audit function.

2.1.2. Malaysian Code on Corporate Governance The Malaysian Code on Corporate Governance was first developed by the public and private sectors and was later approved by the High Level Finance committee (HLFC). HLFC has considered 3 approaches for governance practices. The first one is perspective sets standards on corporate governance practices. The second is the non-perspective which focuses on disclosure of corporate governance practices and selection of practices according to organizational needs. The third is a hybrid of the two, meaning that it adopts both approaches. There are four sections of the Malaysian Code on Corporate Governance: 1) Corporate Governance Principles (a) Board of Directors The board has to consist of executive directors and non-executive directors including independent and non-independent. (b) Directors‟ remuneration. There must be a limitation for the level of remuneration. Firms have to provide a transparent platform for the remuneration policies and the firm‟s annual report had to have the directors‟ remuneration details.


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(c) Shareholders The firm must communicate with its shareholders through the Annual General Meeting (AGM). (d) Accountability and Audit The board of directors must show unbiased and logical evaluation of firm‟s position and visions and also maintain a proper relationship with firm‟s auditor. This Code urges all the firms on Bursa Malaysia to prepare a description on their annual reports in order to show how the applied codes is perceived enough for shareholder to evaluate the firms. 2) Best Practice in Corporate Governance This section identifies a set of guidelines intended to assist the companies on designing their approach to corporate governance. An example may be determining the structure of the board the relationship of the board with the management. 3) Principles and Best Practices for other corporate participants This section of the code the responsibilities of the corporate investors and auditor‟s responsibilities in developing corporate governance. 4) Explanatory notes These are descriptive notes for the earlier parts of the Code. Four other developments were designed to the regulatory and governing institutions so that they can complement any oversight arrangements that have to do with corporate governance in Malaysia. They include: 1. The formation of the companies commission of Malaysia 2. The introduction of the capital Market Plan. 3. The establishment of the Financial Sector master Plan by Bank Negara Malaysia. 4. The demutualization of Bursa Malaysia.

2.5.

The Revised Code on Corporate Governance

The Malaysian Code Corporate Governance was revised in 2007. The revised MCG made no changes to part 1, but made 11 changes to part 2. These changes raised the standard of corporate governance for companies listed on the main Board, Second Board and MESDAQ Market while increasing the investors‟ confidence.


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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS 2.6.

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Board of Directors

From the organizational perspective, the board can be defined as a team brought together to work toward achieving organizational goals(Langton & Robbins 2006). Different studies emphasize on the importance of board of directors and also to see how the strategic role of boards can affect the firm‟s performance. Kajola and Sunday 2008 put emphasis on the control on the board of directors. They state that the board of directors assigns to the CEO and other management staff, the day to day management of the interactions of the firm. Others like Van der Walt and Ingley2001, say that top tasks of a board contain setting policy, vision, monitoring performance and other financial issues. Clearly the board composition and characteristics are important pioneers to effective group decision making and firm‟s performance.

2.7.

Committee of Sponsoring Organizations of the Treadway Commission

(COSO) The Committee of Sponsoring Organizations of the Treadway Commission (COSO) is considered as the private industries that are completely voluntary. It was constructed in the United States and struggles to lead the executive management, business ethics, internal monitoring, governmental entities on basic attributes of the government organization, ERM, fraud and finance. COSO would be able to create a model related to the internal monitoring to prevent firms and organizations eager to investigate the control system. COSO has been established in 1985 to support the national commission on fraudulent financial reporting. This segment is private which studied the overall matters referred to the financial reporting of fraudulent. Furthermore, it suggested some recommendations for public firms for the SEC, independent auditors and educational institutions. National commission covered by five basic professional association has headquarters in United States; the financial executives international (FEI), the American accounting association (AAA), the American institute of certified public accountants (AICPA). On the whole, the independence is contributed to protect the company. The Commission includes industry, public accounting, investment companies, and lastly, stock exchange in New York. James C. Treadway,JR was the first chairman in the national commission. However, currently, David Landsittlehas taken over his place as the chairman. COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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COSO‟s objective is to support those thought and ideas which involve three issues. First one is ERN, second is fraud deterrence and third one is internal control. Based on ERM, COSO is considered as the public Enterprise Risk Management. Besides, it has also published some studies that are related to ERM in 2009. A majority of them can be used free by downloading from the “Guidance tab”. Lastly, COSO published two papers based on fraud deterrence. First one is issued in 1999 with the topic of “Fraudulent Financial Reporting: 1987 to 1997”. Second one is issued in 2010 and the title is Fraudulent Financial Reporting 1998 to 2007. (http://www.coso.org/) 2.8.

Theoretical Perspective

Different theoretical frameworks are used to assess the cooperate governance from various views. Though this may be the case, the aim of various theories has been to come up with a link between various board characteristics and firm performances (Kiel & Nicholson, 2003). Agency theory and Stewardship theory are two theoretical frameworks which discuss the cooperate governance, board of directors and the importance of board characteristics on firm performance from a different but close way by using different words, terminologies and point of views. These views differ meaningfully in light of what directors do, which board attributes affect and influence the company performance and utilization, and which criteria should be implemented to assess the board contribution to company performance (Zahra and Pearce, 1989) In a nutshell, Agency theory focuses on rivaling interests between the principals and agents while Stewardship theory views managers as stewards and suggests the alignments and conjoining of interests between of steward and organizational objectives. Even though the two theories and have different perspectives, they can both be correct and implemented in different environmental conditions (Boyd,1995). 2.8.1. Agency Theory Agency theory is based on modern corporations, when there is a separation of ownership and management i.e., where the management with superior knowledge and skill on the firm decide to go after their own agendas rather than the shareholders‟ (Famaand Jensen, 1983; Boatright, 1999). As a result, there would be a departure from the shareholders maximization and conflicts of interest between managers and shareholders. This is known as Agency theory;the managers COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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being the agents and the shareholders being the principals (Berle and Means, 1932). This problem may be adverse or it may be of moral hazard. Adverse selection occurs when the agents do not have the proper skills and ability to perform their responsibilities which were given to them for their specific skill. Moral hazard is when they underperform with their certain skill set (Eisenhardt, 1989). The divergence of agents and principals can create information asymmetry and result in agency costs (Farrer and Ramsay,1998). This includes the costs of structuring the contracts, costs of monitoring and controlling the behaviour of agents, and loss incurred because of suboptimal decisions taken by the management. Agency theory is used to assess the roles and contributions of the board of directors in relation to their performance in the organization they govern ((Fama and Jensen, 1983). Therefore, the managers cannot be trusted so there is a need for them to be carefully monitored so that the shareholders‟ interests are met (Fama and Jensen, 1983). Two ways of monitoring the managers are board of directors and compensation schemes to align the interests of the agents with the interests of the principal. Fama (1980) considered the board of directors as a way of controlling managers in a low cost manner. This would less costly than takeover for example. This would mean that aside from the low cost monitoring and controlling of the managers, it will improve firm performance and reduce costs from divergent management and shareholder objectives (Fama and Jensen, 1983). The board of directors is therefore a link between the shareholders and the management and make sure that both party‟s interests are met. Agency theory is better suited for larger corporation because it reduces the domination and power of the CEO in the board and provides better oversight of the manager work force in the firm. (Singh and Harianto, 1989) The board frequently meets so there more monitoring of the management and the work force. They will also have the power to mitigate agency costs and asa result, there will be higher performance in the firm. (Singh and Harianto, 1989) This theory discusses the separation duties between the Chief Executive Officer and the chairman in the monitoring of the agents. (Daily et al, 2003) The theory also states that a higher level of monitoring is dependent on board independence. This is because independent directors are more likely to be effective because valuable incentives are given based on their services rendered. (Jensen and Meckling, 1976)


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2.8.2. Stewardship Theory While The Agency theory states that there will be conflict between the managers and the shareholders resulting from the managers having their own self-serving agendas, Stewardship theory takes a directly opposite approach. Stewardship theory states that there will be no such conflict because the managers will not have any financial benefits if they do not meet the interests of the shareholders and carry them out effectively. As such, the manager (steward) will have respect for authority, the need to achieve his goals and responsibility in skill and the satisfaction that comes with the completion of duties. (Donaldson and Davis, 1994). The self-serving agendas are replaced with pro-organizational and collective behaviour that is aligned with the interests of the shareholders. This theory sees the managers and the directors and stewards of the firm and will thus be more likely to maximize the shareholders wealth.(Daily et al, 1991). Stewards provide the higher utility from organizational goal satisfaction rather than self-serving satisfaction. (Davis.et.al, 1997) Agents act as stewards which mage the firm activities and improve the firm performance. (Davis et al 1997). Managers will want to protect their reputations as expert decision makers in a firm, so they will perform in a manner that maximize the firm financial performance and like shareholders returns. The firm performance will reflect directly on the managers‟ performance, skill and expertise (Shliefer and Vishny 1997; Daily et al, 2003). In this theory, inside directors are better suited to take the firm to higher performance level and profit making margins since they already know a lot about the firm. Having more inside directors will better the company performance. (Baghat and Black, 1999) Donaldson and Davis (1991) also concur with this notion in that, if more insiders (executives) are in the board,there is deeper knowledge about firm activities and so performance and profitability will be maximized. 2.9.

Performance of the Firm

Most of the times, ERM emphasizes on risk and return exchanges. The extra market return is a measurement of adjusting the risk for the reason of being risk –adjusted in market return (Kolodny et al., 1989; Gordon and Smith; 1992). Other issues of this risk- adjusted in the ERM is economic income created (EIC), risk – adjusted return on capital (RAROC) and shareholder value – added (SVA) but these measures face some problems. First of all, they can explain the past performance and it has the shadow of accounting – based. Secondly, the estimation of all these measures needs a subjective survey. (Lawrence et al., 2009) COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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Besides, in some literature the strategy – oriented performance evaluation for ERM have been postulated like the balance scorecard stated by the Beasley et al. (2006). Otherwise, it emphasizes on strategy and uses a general issue of ERM, but the BSC ( balanced scorecard) is not suitable for this research because of the large majority of measures and the problem which make it difficult to find an appropriate view to match BSC‟s measures (Kaplan and Norton, 2001). In the financial perspectives (Kaplan and Norton 1992), Return on Assets (ROA), Return on Equity, and Turnover are three outcomes of companies that can give good evidence for financial performance, but this study considers ROA and Turnover.

2.10.

Conceptual Framework and Hypotheses Development

There are some studies about the relationship between board of director characteristics and firm performance (e.g. Bhagat& Black, 1999; Kiel & Nicholson, 2003; Bonn, 2004; Fan et al., 2007), and also according to literature, existence of risk management committee and its size are two other factors that may affect performance. The independent variables are Size of boards, Number of independent non –executive member, Number of financial expertise members, Having risk management committee, size of risk management committee, separateness of risk management and audit committees. Moreover, dependent variables are ROA, and Turnover.

2.10.1. Size of Board Board size contributed to the overall number of non- executive and executive directors placed on the board of directors (O‟Connell and Cramer, 2009).

Earlier researches referred to the influence of board size on performance of firms have covered various outputs. Most of researches figured out that smaller groups of boards improve performance of firms (Jensen 1993;Yermack, 1996). On the other hand, other researches postulated that larger boards develop performance of firms (Jensen 1993; Yermack, 1996).

According to Jensen, 1993, smaller groups of boards are assumed to produce easier association and communication, cooperation and coordination. Lipton and Lorsch, 1992 COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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believed in preventing free riding and challenges of interest happening among members of boards. Yermack (1996) and Eisenberg et al. (1998) also claimed that smaller boards have better and greater performance of firms.

Larger boards would be able to control management beneficially, and improve performance of firms by reducing cost of agency (Yermack, 1996; Eisenberg et al., 1998). It is all because of boards. If the boards are larger, CEO domination is reduced and it causes controlling of management more efficiency. All the conflict happened between CEO and board improve the in sufficiency of the boards which help the board to be more beneficial (Hermalin and Weishbach, 1998). Therefore, greater boards can give some benefits to firms while the board‟s advice to CEO increased. Besides all of them require growth while the complexity of firms develop (Klein, 1998).

Also, following (Singh &Harianto, 1989), thetheory of agency provides larger boards efficiency based on the management controlling and reducing CEO domination on the board to cover interest of shareholders.

Some researchers have managed to find the appropriate and accurate limitations and number for board size. Jensen (1993) believed that board must have limited number of seven or eight members to act more efficiency and beneficially. Lipton and Lorsch (1992) emphasized on maximizing the boards‟ members to 10 people similarly.

As a result, larger boards are faced with some disadvantages due to the lack of cooperation and coordination. Severely larger boards have advantages of various knowledge, expertise, perspectives and information conversely havepositive influence on performance of organization (Eisenberg et al., 1998). Therefore, based on the entire concept above, the following hypotheses are proposed:

HA1: There is positive relationship between Board Size and ROA. HB1: There is positive relationship between Board Size andLog(Turnover).


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2.10.2. Independent non-executive Chairman One of the top people placed on the board is the chairman. He could be both executive or non-executive in firms. These executive and non-executive term related to the chairman are contributed to the inside and outside chairman (Uadiale, 2010). Past researches have figured out the influence of non-executive and independent chairman on performance of corporations. For instance, Baysinger and Butler (1985), monitored organizations better with outsiders who are placed as independent and non-executive dominated chairman fare financially well compared to insiders (executives) dominated, for non- executive chairman can act a vital part in creating various strategic decisions in the organization by keeping basic points. Outside independent chairman is assumed to act a vital role in controlling management compared to inside chairman (Weisbach, 1988). Non- executive chairman can investigate and review the CEO and Management deeply and they can give opinion to management and CEO (Tyson Report, 2003). Thus, management control would be able to be improved. Besides, cost of each agency will be reduced all because of higher performance of firms (Uadiale, 2010). Therefore, the hypotheses below will be mentioned according to this research:

HA2: Number of Independent non-executive Chairman has positive relationship with ROA. HB2: Number of Independent non-executive Chairman has positive relationship with LogTurnover.

2.10.3. Financial Expertise The directors who have knowledge of accounting are placed in groups of people with background knowledge in accounting or having certification on finance or accounting A. Rose and J. Rose 2008).

Few researches tested the impact of background knowledge of board members on performance efficiently.

Facing with lack of accounting knowledge can have an opposite influence on investigation of directors of incomplete management explanations. While directors cannot realize and figure out the accounting features, therefore, they would receive greater degree of risk related to COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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management explanation which is accepted for these events due to the insufficiency or incomprehensibility of explanations (A. Rose and J. Rose 2008).

Other researches claimed that directors who have knowledge of accounting lacked to figure out and measure the information of accounting related to the underperformance of firms (Powers et al., 2002). If members of board do not have enough knowledge of accounting, then it will diminish their potentiality to create informed decisions and contribute to higher cost of agency (Xie, Davidson, and DaDalt, 2003). Accounting knowledge which leads to financial knowledge can improve the quality of governance (A. Rose and J. Rose 2008). Besides, the director who has the responsibility to measure the reports of accounting is handled by managers to get the knowledge of accounting. Moreover, Abbott et al (2004) suggested that the board that is engaged with greater knowledge of financial and accounting can enhance the effectiveness of board contributed to better performance of firms. Therefore, the hypotheses below are determined based on all the issues above: HA3: Higher Number of directors with financial expertise is positively associated with ROA. HB3: Higher Number of directors with financial expertise is positively associated with Log Turnover.

2.10.4. Having risk management committee Having a committee that follows the process contains of five methods (risk enumeration, qualitative and quantitative analysis, applying the risk management strategy, and the assessment of risk management strategy) is one of the strengths of a company. Therefore investigating the effect of having a risk management committee may guide to better understanding of its role. Some researches (e.g. Minton et al., 2010) have investigated the role of the internal control as a feature of corporate governance in different country. Those papers demonstrated that developments in corporate governance reporting requirements offer opportunities for the appropriation of risk and its management by groups wishing to advance their own interests. Since, some of the financial outcomes would be affected by uncertainty; therefore risk management commitment might have influence on financial performance. HA4: Existence of risk management committee is positively related to ROA. HB4: Existence of risk management committee is positively related toLog Turnover. COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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2.10.5. Size of risk management committee As a matter of fact, from the time that risk management impactstheperformance;the upcoming factors will exist for investigating their size. Moreover, the question of how much the commitment can be affected is provoking. Besides, companies should be concerned about this issue. Furthermore, the risk management title is involved with top management, board of directors‟ member and also size of board, therefore the possibilities of risk management‟s size influence on performance would be increased.

HA5: Higher Size of risk management committee leads to higher ROA. HB5: Higher Size of risk management committee leads to higher Log Turnover.

2.10.6. Separateness of risk management and audit committees Risk assessment is based on auditors and the operating managers, C-level executives and board members. Some scholars such as Minton et al., 2010 believes that separateness of risk management committee and audit committees may affect performance. Auditors are going to evaluate risks at the time of examination performance. In this stage, an auditor should choose a mix of information from a massive structure of proofs that will make limitations on some of the risks of those misstatement goods. Operating managers should measure metrics start to determine that each organization is trying to receive its mission. C – level executives test risks to the planned strategy of each organization from both internal and external threats. Beside it can be mentioned within the board of directors. HA6: Separateness of risk management and audit committees is positively related to ROA. HB6: Separateness of risk management and audit committees is positively related to Log Turnover.

3. Method and Results To study the relationship among the mentioned variables, it was needed to measure all variables. For this purpose, all variables arepresented based on their definitions. ROA: Return on assets equals profit (before tax) divided by total assets of the company (O‟Connell and Cramer, 2009). COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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Turnover: It is the number of times an asset is replaced during a financial period (O‟Connell and Cramer, 2009). Size of boards (BS): It is the total number of directors sitting on the board of directors (O‟Connell and Cramer, 2009). Number of independent non –executive member (IND):It is the number of independent non-executive directors engaged in board of directors (Hambrick and Jackson, 2000). Number of financial expertise members (NFE): It is the number of directors with accounting certificate or background in finance (Carpenter and Westphal, 2001) Having risk management committee (HRM): Based on Mikes (2005), ERM is a systematic approach for managing risk. Some companies have committees to manage risk but some companies do not have this. Size of risk management committee (RMS): It is the number of directors involved in risk management committee. Separateness of risk management and audit committees (SRMA): Based on of Malaysian corporation annual reports (Bursa Malaysia 2010), in some of them risk management committee is separate from audit committee. As a result, this study concludes the function of model as follows: Model 1: ROA= α + β1 (BS) + β2 (IND) + β3 (NFE) + β4 (HRM) + β5 (RMS) + β6 (SRMA) Model 2: Log Turnover= α + β1 (BS) + β2 (IND) + β3 (NFE) + β4 (HRM) + β5 (RMS) + β6 (SRMA) The sample companies selected in this study are from firms listed on the main market of Bursa Malaysia in the year 2010. Random sampling was used for collecting 175 companies among other companies from different sectors with acceptable market capitalizations. All necessary data were gathered from annual reports downloaded from KLSE website and Bursa Malaysia website. Table 3: Sample categorizing based on industry Industry Services Manufacturing Raw material More than one industry Total

Frequency 93 40 22 20 175


Percentage 53.1 22.9 12.6 11.4 100 689

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Information regarding mentioned independent and dependent variables are provided from annual reports. This information includes Board characteristics, Risk management, etc. Furthermore, some information were not available from the companies‟ websites. Three statistical analyses are used to test mentioned developed hypotheses, and they are: 1. Descriptive statistics to provide a general overview on independent and dependent variables 2. Pearson correlation to test the general relationship between any two variables 3. Regression analysis is based on Ordinary Least Squares (OLS) to model and analyze various variables when the relationship between independent and dependent is analyzed. Besides, there were some software for analyzing data, but SPSS 19 was an appropriate choice among them.

3.1.

Descriptive Statistics

Tables 4 and table5 provide descriptive statistics of variables (independent, dependent, and control) for 175 firms in Malaysia from main market and different sectors. In relation to independent variables, sample companies has the minimum number of 5, maximum number of 21, and average number 9 directors (Mean=9.05) sitting on the board.

In terms of number of independent non-executive members, board has maximum number 9 and minimum number 1, and also the average is 4.21. With respect to board characteristics, minimum number of board members with background in finance is 1 and maximum is 9. Moreover, average is 3.97.

In terms of risk management, the existence of risk management committee is a dummy variable, i.e. as the number 1 shows company has risk management committee while 0 shows that the firm does not have risk management committee. Based on Table4, 26.9 % of companies do not have risk management committee and other companies have (73.1%).

Regarding the existence of risk management committee, size of this committee varies between 0 to10. Furthermore, among companies that have risk management committee, the minimum of number of committee members is 3. COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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Another dummy variable is separateness of risk management and audit committees. Number 1 shows risk management committee is separate from the audit committee, and number 0 shows they are combined. Based on statistics, 64.6 % are combined and 35.4 are separate.

In this study, Total Assets has the maximum of RM 336,700,000,000 and minimum RM 840,000,000. Besides, average of total assets is RM 1,140,000,000. During 2010, among all selected companies, the oldest company has 50 years experiences, and the youngest has 1 year, and average age is 26.72.(Based on Initial Public Offering (IPO) date)

In terms of foreign subsidiaries, among selected companies the maximum number is 65, minimum is 0, and the average is 6.18.

Return on assets that is a performance measurement has average 7.68, minimum -2.401, and maximum 46.593. In terms of companies‟ turnover, results shows that the minimum turnover is RM 46,000,000, maximum is 111,600,000,000, and average is 3,020,000,000.

Tables 6 and 7 (Appendix) report the correlation coefficient among each of the variables in Model 1 & Model 2 respectively. The correlation matrix for both models indicate no multicollinearity problem, as the correlations are relatively low, i.e. not exceeding 0.8 (Gujarati, 1999). Besides, two Regression analyses were performed among firm performance (ROA, Log Turnover) as dependent variables and BS, IND, NFE, HRM, RMS, and SRMA as independent variables.(See Table 8 and 9 in Appendix) Board characteristics including size of board, Number of independent non-executives member, and Number of experts in finance, and after investigating the role of these three mentioned elements, results are as follow: Size of board has no significant impact on ROA, and it means that for every change in size of board, serious changes are unpredictable. Although some previous research by Laing&Weir


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(1999) and Weir, Laing , and McNight (2002) showed that this impact can be significant, the results did not support this relation in Malaysia. On the other hand, Size of board has significant and positive impact on Log Turnover, so it also has significant impact on Turnover. It means that Malaysian firms can improve their turnover based on changes in size of their companies‟ board. Results show that the number of independent non- executive members has significant impact on ROA positively. Thus, by increasing the number of independent non-executive members in board of directors, ROA will be improved. Result asserted positive and significant relationship between IND and Log Turnover, so for any unit increase in number of independent non-executive members of board of directors, Log Turnover and thereby Turnover will increase.

This study showed that the relationship between numbers of financial experts in board (NFE) does not have significant effect on ROA and Turnover in Malaysia. Although before this study it was expected that this factor may affect positively, results showed differently. The reason could be all board members because of high experiences in their background carry financial knowledge. Existence of risk management committee in chosen sample companies showed significant effects on ROA, but its effect wasn‟t significant on turnover. Thus, initiating risk management committee in other companies which do not have this committee can be useful for them to increase their ROA. But there is not enough evidence to motivate Malaysian companies for initiating risk management committee in order to increase their turnover. Based on the results, risk management size has negative significant impact on ROA; it means that Malaysian firms with bigger size of risk management committee have less success in improvement ROA. On the other hand, this size does not have significant effect on Turnover. Separateness of risk management committee and audit committee was another issue investigated in the current Bursa Malaysia condition. Results showed that combination or separateness of mentioned committees have no significant impact on ROA and Turnover.

4. Conclusions Enterprise Risk Management (ERM) has become a well-known concept all around the world. In fact, it is a new concept for businesses and industries to focus on. Nowadays, it has become the final term to impact Risk management. Particularly, ERM is considered to extend COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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the board and senior manager‟s capabilities to investigate general samples of risks that confront an enterprise (Beasley et al., 2006). Besides, Enterprise Risk Management covers a particular competitive source for those groups of people with a high potentiality of ERM and strength (Stoh, 2005). It is believed that the ERM system cannot be mentioned in a static regulation which is driven from the general nature of risk. Some of the risks can be confronted with some changes of the organization like macroeconomic, industry specific, country specific and a firm specific. Although these risks are going to change every time but the risk management would be measured on the regular issues. This evaluation and review can happen in all of the organizations specified due to the explanation of the ERM. The philosophy of the risk management is organized by the top managers and board of director‟s risk management philosophies that can be varied due to the organized outcomes of the organization. For example, the companies with the interest of venture capital are attracted to the risk culture. The researches with some knowledge, particularly in risks wonder if these risks are able to pay dividends in the upcoming future. On the other hand, a majority of the matured organizations would determine risk aversion. Other companies may be able to create a good profit by producing the same products with only a little change for a long period of time like restaurants, soap products companies, and paper producers. We can mentionthe risk management philosophy of the organization briefly but it can be a goal that is distributed to the employees inside all the parts of the organization(COSO 2004). Regarding the important role of board of directors in managing risk, the effects of board characteristics, existence of risk management committee, size of risk management committee, and separateness of risk management and audit committees on firm performance (ROA and Turnover) were measured and the results are as follows: 

Size of board has no significant impact on ROA



Size of board has positive and significant impact on LogTurnover



Number of independent non-executive members has significant impact on ROA positively.



Number of independent non- executive members has significant impact on LogTurnover positively.



There is no significant relationship between Number of board members with background in finance and ROA.


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There is no significant relationship between Number of board members with background in finance and LogTurnover.



There is significant and negative relationship between the existence of risk management committee and ROA.



There is no significant relationship between the existence of risk management committee and LogTurnover.

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There is positive and significant relationship between size of risk management committee and ROA.

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There is no significant relationship between RMS and LogTurnover.



Separateness or combination of audit committee and risk management committee has no significant impact on ROA.



Separateness of risk management and audit committees has no significant impact on LogTurnover.

There are several contributions that come out from this research. Firstly, it contributes to better understanding of board-performance link by investigating the traditional variables such as size of board, number of independent non-executive, number of board with financial expertise. This method suggests a newer light into operation and of creation top management teams as strategic decision making groups (Forbes and Miniken, 1999).

Second, this study is one of the few studies that has bridged the nature of risk management committee and firm performance, and also the role of other characteristics were discussed. The findings showed that existence of risk management committee can increase ROA of firm, but size of risk management committee has negative effect on ROA. Thirdly, this study showed that any study on relationship between ERM and risk management would be better if it is narrowed on specific industries because level of risk in any industry could be different.

4.1.

Limitation of study

This study has limitations as well; the data provided by companies in Bursa Malaysia, didn't follow unique standards and in the case of some companies, data wasn‟t updated in the Bursa web site for instant provided data related to 2009 and we couldn't use those in this study. Second is the period of investigation which was only for 2010 and the results can be COPY RIGHT © 2013 Institute of Interdisciplinary Business Research

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improved if data was chosen over a longer period. The third issue is relevant to the sample size that was 200 companies in the first section and because of shortage of data this size was reduced to 150 companies and in the third step for improving results, we had to choose 25 more companies and enter those data to study. The fourth issue is relevant to the limitations of data collection because the data was collected from recognized public databases. In addition, if there were any problems related to the disclosure of data, this could create some limitations in the validity of the findings. Moreover, thefinal limitation that was recognized as relevant was the transparency of information that was provided by companies, especially in the sector of corporate governance and committees. In this section, in some reports, it didn‟t mentioned clearly about the risk management committee and members in an organized manner, and we had to review different sections to find out how many members there are in the Risk management committee.

4.2.

Future Studies

In this section of future studies, some points will be highlighted that may make researchers eager to continue this work or result of studies may show new routes to future studies. According to the limitation mentioned, companies selected in this study were distributed to several industries with different Risk factors, and it is suggested that according to the risk factor of industry and outcomes of company, to retest the variables and factors. For instance, we can categorize companies to low risk, medium risk and high risk companies and then identify the role of the risk committee on turnover and ROA. The second suggestion is to use this framework to other types of stock markets such as Hong Kong, Singapore, Dubai and other stock exchange markets that may have similarities with Bursa Malaysia. In the case of companies that have Risk management Committee,it is better to investigate those companies with risk committee from before initiation of risk committee and impact of this initiation on turnover and ROA. In this study, secondary data was used which was provided by companies listed in theBursa Malaysia; for future studies it is suggested to use interview and surveys to combine primary data as well as to support arguments; on the other hand in interviews one can ask about the amount of coverage of Risk committee and other details of this issue.


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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS Appendix

Table4: Descriptive statistics for variables used in model 1 & model2 (Numeric) Numeric variables

No.

Minimum

Maximum

Mean

Std. Deviation

SIZE OF BOARD (BS)

175

9

21

9.05

2.441

NO IND.NON EXEC (IND)

175

1

9

4.21

1.507

NO FINANCE EXPE (NFE)

175

1

9

3.97

1.68

RM SIZE (SRM)

175

3

10

3.16

2.165

TOTALLASSETS (TA)

175

RM 840 million

RM 336.7 billion

RM 1.14 billion

RM 3.9 billion

Foreign Subsidiaries

175

0

65

6.18

11.03

Age

175

1

50

26.7

14.43

ROA

175

-2.401

46.593

7.68199

6.918980

TURNOVER

175

RM 111.6 billion

RM 3.02 billion

RM 792 million

Dependent Variables RM 46 million

Table 5: Frequency of Dummy Variables Having RM

Have=1

128 companies

73.1%

Do not have=0

47 companies

26.9%

Separate=1

62 companies

35.4%

Combined=0

113 companies

64.6%

Service oriented=1

93 companies

53.1%

Manufacturing=2

40 companies

22.9%

Raw Materials=3

22 companies

12.6%

More than one industry=4

20 companies

11.4%

Committee

Separateness RM committee and Audit

Type of Industry


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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS Table 6: Pearson Correlation 1 ROA (1) BS (2) IND (3) NFE (4) HRM (5) RMS (6) SRMA (7) Log TA (8) NFS (9) Ln Age (10) TI (11)

(1) 1.00 -0.014 0.203 0.167 0.025 0.205 0.105

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

1.00 0.427 0.276 -0.056 0.071 0.053

1.00 0.479 -0.009 0.129 -0.025

1.00 0.88 0.213 0.079

1.00 0.75 0.395

1.00 0.438

1.00

0.251

0.162

0.018

-0.166

-0.046

-0.02

0.066

1.00

-0.118 -0.139

-0.042 0.075

0.017 0.33

-0.005 -0.057

0.078 0.114

-0.023 -0.089

0.008 0.118

0.219

-0.166

0.24

-0.026

-0.066

-0.061

-0.046

(11)

0.067 0.026

1.00 0.147

1.00

-0.116

0.065

-0.046

1.00

Table 7:Pearson Correlation 2. Log Turnover (1) BS (2) IND (3) NFE (4) HRM (5) RMS (6) SRMA (7) Log TA (8) NFS (9) Ln Age (10) TI (11)

(1) 1.00

(2)

(3)

(4)

(5)

(6)

(7)

(8)

(9)

(10)

(11)

0.306 0.19 -0.024 -0.021 0.060 0.003 0.458 -0.199 -0.042 -0.073

1.00 0.427 0.276 -0.056 0.071 0.053 0.162 -0.042 0.075 -0.166

1.00 0.479 -0.009 0.129 -0.025 0.018 0.017 0.33 0.24

1.00 0.88 0.213 0.079 -0.166 -0.005 -0.057 -0.026

1.00 0.75 0.395 -0.046 0.078 0.114 -0.066

1.00 0.438 -0.02 -0.023 -0.089 -0.061

1.00 0.066 0.008 0.118 -0.046

1.00 0.067 0.026 -0.116

1.00 0.147 0.065

1.00 -0.046

1.00


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Table 8: OLS Regression Results for Model 1 (ROA) Hypothesis

Expected sign

Constant

Beta

Std. Error

t-value

p-value

VIF

18.285

5.504

3.322

0.00

1.753

Hypothesis Variables BS

HA1

+

-0.2

0.226

-0.884

0.378

1.108

IND

HA2

+

0.785

0.396

2.274

0.037

1.380

NFE

HA3

+

-0.044

0.342

-0.033

0.973

1.445

HRM

HA4

+

-3.6

1.743

-2.175

0.039

1.753

RMS

HA5

+

1.008

0.372

2.777

0.007

1.432

SRMA

HA6

+

1.445

1.134

1.274

0.205

1.302

Log TA

-1.582

0.041

6.199

0.001

1.085

Ln Age

-0.668

0.057

-0.008

0.382

1.054

TI

1.313

0.039

-0.556

0.005

1.033

NFS

-0.045

0.004

2.237

0.286

1.076

Control Variables

R Square

0.222

Adjusted R Square

0.18

F-Ratio

4.78

Significance F

0.00

N

175


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Table 9: OLS Regression Results for Model 2 (LogTurnover) Hypothesis

Expected sign

Constant

Beta

Std. Error

t-value

p-value

VIF

6.405

13.751

14.409

0.00

1.753

Hypothesis Variables BS

HB1

+

0.054

0.226

2.917

0.005

1.108

IND

HB2

+

0.082

0.396

1.397

0.01

1.380

NFE

HB3

+

-0.024

0.342

-1.201

0.231

1.445

HRM

HB4

+

-0.119

1.743

-0.820

0.412

1.753

RMS

HB5

+

0.023

0.372

1.390

0.289

1.432

SRMA

HB6

+

-0.069

1.134

-0.793

0.476

1.302

Log TA

-1.582

0.041

6.199

0.00

1.085

Ln Age

0.001

0.057

0.028

0.993

1.054

TI

-0.022

0.039

-.0.56

0.579

1.033

NFS

0.008

0.004

2.58

0.027

1.076

Control Variables

R Square

0.312

Adjusted R Square

0.238

F-Ratio

6.78

Significance F

0.00

N

175


707